UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File Number 5-43936
BANKUNITED FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Florida 65-0377773
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
255 Alhambra Circle, Coral Gables, Florida 33134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 569-2000
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
9% Noncumulative Perpetual Preferred Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Class A Common Stock and Class B Common
Stock held by non-affiliates of the Registrant, based upon the average price on
December 13, 2000, was $127,914,921.* The Class A Common Stock is the only
publicly traded voting security of the Registrant.
The shares of the Registrant's common stock outstanding as of December 13,
2000 were as follows:
Class Number of Shares
Class A Common Stock, $.01 par value 17,794,408
Class B Common Stock, $.01 par value 446,262
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 2001 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to General Instruction G(3) of the Form 10-K. Information from such
Definitive Proxy Statement will be incorporated by reference into Part III,
Items 10, 11, 12 and 13 hereof.
-----------
* Based on reported beneficial ownership of all directors and executive
officers of the Registrant; this determination does not, however,
constitute an admission of affiliated status for any of these individual
stockholders.
<PAGE>
BANKUNITED FINANCIAL CORPORATION
Form 10-K Index
<TABLE>
<CAPTION>
PART I Page
<S> <C>
Item 1.
Business..................................................................... 2
Market Area and Competition.................................................. 3
Lending Activities........................................................... 4
Asset Quality................................................................ 12
Investments and Mortgage-Backed Securities................................... 14
Mortgage Loan Servicing...................................................... 16
Sources of Funds............................................................. 16
Activities of Subsidiaries................................................... 21
Employees.................................................................... 21
Regulation................................................................... 22
Taxation..................................................................... 30
Item 2. Properties................................................................... 33
Item 3. Legal Proceedings............................................................ 33
Item 4. Submission of Matters to a Vote of Security Holders.......................... 33
Item 4A. Executive Officers of the Registrant......................................... 34
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters.................................................................... 37
Item 6. Selected Financial Data...................................................... 38
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 40
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................... 61
Item 8. Consolidated Financial Statements and Supplementary Data..................... 69
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................... 111
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 111
Item 11. Executive Compensation....................................................... 111
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 111
Item 13. Certain Relationships and Related Transactions............................... 111
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 112
</TABLE>
1
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Forward-Looking Statements
When used in this Form 10-K or future filings by BankUnited Financial
Corporation ("BankUnited") with the Securities and Exchange Commission, in
BankUnited's press releases or other public or shareholder communications, or in
oral statements made with the approval of an authorized executive officer, the
word or phrases "will likely result," "expect," "will continue," "anticipate,"
"estimate," "project," "believe" and similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. BankUnited wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various factors, including
general economic factors and conditions, changes in levels of market interest
rates, credit risks of lending activities, competitive and regulatory factors,
and expansion strategies could affect BankUnited's financial performance and
could cause BankUnited's actual results for future periods to differ materially
from those anticipated or projected. BankUnited does not undertake, and
specifically disclaims any obligation, to publicly release the result of any
revisions, which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
PART I
Item 1. Business
BUSINESS OF BANKUNITED FINANCIAL CORPORATION
General
BankUnited is a Florida corporation and the savings and loan holding
company for BankUnited, FSB (the "Bank"). BankUnited's principal business
currently consists of the operations of the Bank. The Bank was founded in 1984
as a savings and loan association. In 1993, the Bank was converted to a
federally chartered savings bank and became a wholly-owned subsidiary of
BankUnited, pursuant to a plan of reorganization approved by its shareholders.
The Bank's revenues are derived principally from interest earned on loans,
mortgage-backed securities and investments, and its primary expenses arise from
interest paid on deposits and borrowings and non-interest operating expenses
incurred in operations. At September 30, 2000, BankUnited had assets of $4.6
billion, deposits of $2.6 billion and stockholders' equity of $ 0.2 billion.
Prior to 1998, the primary business strategy of BankUnited was to generate
stable interest-bearing deposits and use the proceeds to purchase residential
mortgages in the secondary market. In 1998, BankUnited initiated several
fundamental changes in its business strategy. During the first half of 1998,
through the Consumers Bancorp, Inc. ("Consumers") and Central Bank ("Central")
acquisitions, the Bank expanded its deposit base and product lines to include
new consumer and commercial products. In December 1998, after consideration of
several factors, the decision was made to reposition BankUnited. First, because
of continued competition from other investors and unfavorable changes in the
rate environment, the yields from purchased residential mortgages no longer
provided sufficient returns to BankUnited or to other institutions
2
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with similar investment strategies. Second, increased competition for
certificates of deposit and other long-term savings from online brokers, mutual
funds and other out of market institutions resulted in an increase in interest
rates relative to earnings on assets. Third, numerous acquisitions of local
banks by sizeable out-of-state institutions created a large number of
dissatisfied customers who were seeking a strong, community-based bank and who
were willing to move their relationships. Fourth, the increasing velocity of
change and commoditization of the financial services industry made it
increasingly critical that surviving participants define customer bases and core
competencies and begin to deliver around them.
BankUnited commenced this repositioning process by hiring a new President
and executive management team, under whose direction a restructuring to
streamline the organization, lower expenses, increase profit margins and improve
the use of its deposit base was completed. As a result of this restructuring,
BankUnited has eliminated its dependence on purchasing residential mortgage
loans in the secondary market; instead the focus is on originating residential
loans, and on increasing its emphasis on commercial lending, consumer lending
and small business banking. New products and services were implemented to meet
customer needs, and the expansion of the branch network continued.
BankUnited currently has thirty-two branch offices in southeast Florida and
one in southwest Florida and anticipates opening four to six additional branch
offices in fiscal year 2001. BankUnited is also re-evaluating existing branch
locations to ensure that its markets are optimally served.
The Bank is a member of the Federal Home Loan Bank of Atlanta (the "FHLB")
and is subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS") and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits in the Bank are insured by the Savings
Association Insurance Fund to the maximum extent permitted by law.
Market Area and Competition
BankUnited conducts business in Miami-Dade, Broward, Palm Beach and Collier
counties ("South Florida") which geographic region, at June 30, 2000, had a
total of approximately $86 billion in deposits at commercial banks and savings
institutions (42.4% of the total $202.7 billion of deposits in Florida).
BankUnited intends to continue to strategically establish or acquire branch
offices in its market area and may expand into other parts of Florida.
BankUnited encounters strong competition in attracting retail and business
deposits and loans. BankUnited's most direct competition for deposits
historically has been from commercial banks, brokerage houses, other savings
associations, and credit unions located in its market area. Recently, BankUnited
has also experienced competition from out-of-state organizations that offer
premium deposit rates to offset their lack of physical locations in the market
area. Many non-bank competitors actively seek a share of deposit business and
some brokerage houses compete directly for small business loans. BankUnited also
competes in its market area with the branch offices of several regional and
super-regional commercial banks and savings associations that are substantially
larger and have more extensive operations than BankUnited, including
3
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several formerly independent entities, which have recently been acquired by
larger institutions headquartered out of state.
The consolidation of the financial services industry has created
opportunities and challenges for BankUnited. Mergers among institutions have
disrupted many customer relationships and created an opening for BankUnited to
acquire new customers. Larger institutions, however, have been able to achieve
economies of scale in operational processes, offer a broader and more
sophisticated product mix, have a reduced cost of capital and offer more
extensive electronic banking facilities. BankUnited's goal is to compete for
savings and other deposits by offering depositors a higher level of personal
service, together with a wide range of deposit products offered at competitive
rates.
The competition in originating real estate and other loans comes
principally from commercial banks, mortgage banking companies and other savings
associations. BankUnited competes for loan originations primarily through the
interest rates and loan fees that it charges, the types of loans that it offers,
and the efficiency and quality of service that it provides. While BankUnited has
been, and intends to continue to be, primarily a residential lender, BankUnited
has recently increased its emphasis on commercial real estate, construction,
commercial and consumer lending, as discussed more fully below. Factors that
effect competition in lending include general and local economic conditions,
current interest rates and volatility of the mortgage markets. Management
continues to evaluate market needs and products to meet those needs that also
allow BankUnited to control the growth of its assets and liabilities. As with
its deposit products, BankUnited's strategy is to promote a higher level of
personal service and to position itself as a community bank offering a full
range of financial services.
Lending Activities
From inception in 1984 through 1998, BankUnited's primary source of earning
assets was the purchase of one-to-four family residential mortgage loans in the
secondary market. During the last six months of fiscal 1998 and the first six
months of fiscal 1999,BankUnited experienced significant prepayment of these
loans and as a result BankUnited discontinued purchasing One-Year CMT loans
which are adjustable-rate mortgages with an index tied to the weekly average
yield on one-year U.S. Treasury securities adjusted to a constant maturity
published by the Federal Reserve ("One-Year CMT"),altered its practice of
purchasing loans in the secondary market, and turned its focus to producing
assets. BankUnited's current lending strategy includes originating residential
mortgages and expanding its commercial real estate, real estate construction,
commercial, and small business lending, as well as offering consumer loans, such
as home equity loans and lines, and automobile loans. The credit approval
process generally involves both a credit scoring process and traditional
underwriting methodologies. BankUnited's credit approval policies and procedures
are updated as necessary to encompass new products and services.
Loan Portfolio. BankUnited's loan portfolio primarily consists of mortgage
loans secured by one-to-four family residential and commercial real estate. As
of September 30, 2000, BankUnited's loan portfolio before deferred fees and
allowance for loan loss ("net items") totaled $3.7 billion, of which $3.2
billion or 87.8% consisted of one-to-four family residential mortgage loans. At
the
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present time, BankUnited's residential real estate loans are primarily
"conventional" loans not insured by the Federal Housing Administration (the
"FHA") or guaranteed by the Veterans Administration (the "VA"). BankUnited is,
however, approved to originate FHA and VA loans. As of September 30, 2000, the
remainder of BankUnited's loan portfolio consisted of $155.6 million of
commercial real estate loans (4.2% of total loans); $83.0 million of commercial
business loans (2.3% of total loans); $73.3 million of construction and land
loans (2.0% of total loans); $66.5 million of consumer loans (1.8% of total
loans); and $71.0 million of multi-family (five-or-more units) residential real
estate loans (1.9 % of total loans).
At September 30, 2000, $1.7 billion, or 47.2% of BankUnited's total loan
portfolio before net items, consisted of purchased mortgage loans and loan
participations, serviced by others. These loans were primarily one-to-four
family residential mortgage loans. At September 30, 2000, BankUnited's loan
portfolio included $445.6 million of residential mortgage loans to non-resident
aliens, which was 12.1% of total loans before net items. See "Residential
Mortgage Loan Originations and Purchases" for additional information on
BankUnited's loans to non-resident aliens.
5
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Set forth below is a table showing BankUnited's loan origination, purchase
and sale activity for the periods indicated.
<TABLE>
<CAPTION>
Year End September 30,
2000 1999 1998
-----------------------------------------------
(in thousands)
<S> <C> <C> <C>
Total loans receivable, net, at beginning of period (1) ........ $ 3,302,866 $ 3,042,014 $ 1,765,723
Loans originated:
Residential real estate .................................... 667,466 592,899 312,749
Commercial real estate, business and consumer .............. 256,733 130,226 73,692
-----------------------------------------------
Total loans originated (1) ..................................... 924,199 723,125 386,441
Loans acquired in acquisition(2) ............................... -- -- 111,786
Loans purchased (3) ............................................ 5,465 803,329 2,747,061
Loans sold ..................................................... (10,210) (23,564) (173,498)
Loans securitized .............................................. -- -- (355,469)
Principal repayments and amortization of discounts and
premiums ..................................................... (543,321) (1,228,540) (1,435,075)
Increase in allowance for loan losses, net ..................... (925) (5,979) (2,435)
Transfers to real estate owned, net ............................ (7,305) (7,519) (2,520)
-----------------------------------------------
Total loans receivable, net, at end of period (1) .............. $ 3,670,769 $ 3,302,866 $ 3,042,014
===============================================
</TABLE>
(1) Includes loans held for sale.
(2) Loans acquired in the Central and Consumers mergers included $69.6 million
of one-to-four family residential real estate loans, $15.3 million of
commercial real estate loans and $26.8 million of other types of loans. See
"Managements Discussion and Analysis of Financial Condition and Results of
Operations-Acquisitions" for additional information regarding the
acquisitions.
(3) Loans purchased are primarily one-to-four family residential real estate
loans.
The following table sets forth certain information with respect to the
composition of BankUnited's loan portfolio, including mortgage loans held for
sale, as of the dates indicated.
<TABLE>
<CAPTION>
As of September 30,
--------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
First and second mortgage loans: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One-to-four family residential loans ......... $ 3,218,868 87.8% $ 3,010,427 91.1% $ 2,788,838 91.6%
Multi-family residential loans ............... 70,856 1.9% 30,057 0.9% 24,392 0.8%
Commercial real estate ....................... 155,569 4.2% 141,090 4.3% 145,819 4.8%
Construction ................................. 38,786 1.1% 15,425 0.5% 7,827 0.3%
Land ......................................... 34,489 0.9% 23,659 0.7% 5,410 0.2%
--------------------------------------------------------------
Total first and second mortgage loans ...... 3,518,568 95.9% 3,220,658 97.5% 2,972,286 97.7%
Consumer loans ............................... 66,480 1.8% 33,878 1.0% 30,401 1.0%
Commercial business loans .................... 83,023 2.3% 48,173 1.5% 15,550 0.5%
--------------------------------------------------------------
Total loans receivable ....................... 3,668,071 100.0% 3,302,709 100.0% 3,018,237 99.2%
--------------------------------------------------------------
Deferred loan fees, premium and disc ......... 15,730 0.4 12,264 0.4 29,905 1.0
Allowance for loan losses .................... (13,032) (0.4)) (12,107) (0.4)) (6,128) (0.2))
--------------------------------------------------------------
Loans receivable, net ...................... $ 3,670,769 100.0% $ 3,302,866 100.0% $ 3,042,014 100.0%
==============================================================
<CAPTION>
As of September 30,
--------------------------------------
1997 1996
--------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
First and second mortgage loans: (dollars in thousands)
<S> <C> <C> <C> <C>
One-to-four family residential loans ......... $ 1,565,815 88.6% $ 570,951 88.3%
Multi-family residential loans ............... 32,163 1.8% 12,559 2.0%
Commercial real estate ....................... 130,197 7.4% 49,318 7.6%
Construction ................................. 7,477 0.4% -- --
Land ......................................... 7,997 0.5% 2,687 0.4%
--------------------------------------
Total first and second mortgage loans ...... 1,743,649 98.7% 635,515 98.3%
Consumer loans ............................... 1,748 0.1% 2,648 0.4%
Commercial business loans .................... 10,890 0.6% 5,822 0.9%
--------------------------------------
Total loans receivable ....................... 1,756,287 99.4% 643,985 99.6%
--------------------------------------
Deferred loan fees, premium and disc ......... 13,129 0.8 4,558 0.7
Allowance for loan losses .................... (3,693) (0.2)) (2,158) (0.3)
--------------------------------------
Loans receivable, net ...................... $ 1,765,723 100.0% $ 646,385 100.0%
======================================
</TABLE>
6
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Applicable regulations permit BankUnited to engage in various categories of
secured and unsecured commercial and consumer lending, in addition to
residential real estate financing, subject to limitations on the percentage of
total assets attributable to certain categories of loans. An additional
limitation imposed by regulation requires that certain types of loans only be
made in aggregate amounts that do not exceed specified percentages of the
institution's capital. The following table sets forth, as of September 30, 2000,
the amount of loans (including mortgage loans held for sale) by category and
expected principal repayments. These repayments are based on historical
experience.
<TABLE>
<CAPTION>
Outstanding at
September 30, 2005- 2007- 2011 and
2000 2001 2002 2003 2004 2006 2010 Thereafter
----------------------------------------------------------------------------------------
First and second mortgage loans: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four-family residential .......... $ 3,218,868 $ 507,980 $ 453,686 $ 392,764 $ 303,299 $ 431,986 $ 516,768 $ 612,385
Multi-family residential ................ 70,856 7,703 6,702 10,647 20,710 19,855 4,888 351
Commercial real estate .................. 155,569 42,376 38,250 19,226 14,036 23,145 17,102 1,434
Construction ............................ 38,786 2,662 23,417 12,649 -- -- -- --
Land .................................... 34,489 25,869 7,858 602 57 62 41 --
----------------------------------------------------------------------------------------
Total first and second mortgage loans ... 3,518,568 586,590 529,913 435,888 338,102 475,048 538,799 614,170
----------------------------------------------------------------------------------------
Consumer loans .......................... 66,480 16,762 12,828 9,046 5,067 5,624 5,844 11,309
Commercial business loans ............... 83,023 52,766 19,367 3,929 1,382 5,393 134 52
----------------------------------------------------------------------------------------
Total loans ............................. $ 3,668,071 $ 656,118 $ 562,108 $ 448,863 $ 344,551 $ 486,065 $ 544,777 $ 625,531
========================================================================================
</TABLE>
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As of September 30, 2000, 45.7% of BankUnited's loans receivable before net
items (36.8% of total assets) were secured by properties located in Florida and
11% of loans receivable before net items (8.8% of total assets) were secured by
properties located in California. No other state comprises more than 10%.
Because of this concentration, regional economic circumstances in those states
could affect the level of BankUnited's non-performing loans. The following table
sets forth, as of September 30, 2000, the distribution of the amount of
BankUnited's loans receivable before net items (including mortgage loans held
for sale) by state.
Outstanding at
State September 30, 2000
----- ------------------
(dollars in thousands)
Florida(l)............................ $ 1,677,336
California............................ 402,797
New York.............................. 132,423
Massachusetts......................... 113,297
Colorado.............................. 109,258
New Jersey............................ 91,948
Virginia.............................. 89,956
Texas................................. 86,157
Illinois.............................. 79,976
Maryland.............................. 79,585
Connecticut........................... 66,405
Michigan.............................. 60,315
Washington............................ 57,627
Georgia............................... 50,815
Arizona............................... 47,682
North Carolina........................ 47,582
Pennsylvania.......................... 43,114
Ohio.................................. 36,181
Utah.................................. 33,238
Oregon................................ 24,877
Tennessee............................. 20,631
Minnesota............................. 19,890
Nevada................................ 17,685
South Carolina........................ 16,842
District of Columbia.................. 12,404
Indiana............................... 11,804
New Mexico............................ 11,159
Missouri.............................. 10,401
Alabama............................... 9,484
Kansas................................ 9,244
Oklahoma.............................. 7,254
Wisconsin............................. 6,918
Idaho................................. 6,124
Arkansas.............................. 5,424
Kentucky.............................. 4,787
Louisiana............................. 4,713
Iowa.................................. 4,185
Wyoming............................... 3,983
Nebraska.............................. 3,671
Montana............................... 3,216
New Hampshire......................... 3,189
Hawaii................................ 3,107
Delaware.............................. 2,990
Maine................................. 2,570
Rhode Island.......................... 2,354
Mississippi........................... 1,817
Alaska................................ 1,638
Vermont............................... 1,411
Other................................. 860
Not secured by real estate............ 127,747
-----------
Total loans........................... $ 3,668,071
===========
(1) Does not include $ 5.7 million of tax certificates representing liens
secured by properties in Florida.
8
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One-to-Four Family Residential Mortgage Loan Originations and Purchases.
BankUnited's lending primarily involves originating loans secured by first
mortgages on real estate improved with single-family dwellings. During fiscal
2000, BankUnited continued to reduce its dependence on purchasing residential
mortgage loans in the secondary market by focusing on originating these loans.
BankUnited originates one-to-four family residential mortgage loans through its
branches and its network of non-affiliated wholesale brokers. In fiscal 2000,
the wholesale brokers generated approximately 92% of BankUnited's one-to-four
family residential mortgage loan originations. Currently, BankUnited is
generating these loans with approximately 200 wholesale brokers located mainly
in South Florida. During fiscal year 2001, BankUnited plans to expand its
wholesale broker network throughout the State of Florida and other selected
states. Originations in the wholesale program, together with branch lending,
reached $667.5 million, $592.9 million, and $312.7 million for the years ended
September 30, 2000, 1999, and 1998, respectively.
The Bank services loans that it originates and endeavors to purchase loans
servicing-released when available and appropriate. At September 30, 2000, $3.2
billion or 87.7%, of BankUnited's total loan portfolio consisted of one-to-four
family residential loans, of which $1.5 billion, or 46.9%, were adjustable rate
mortgage ("ARM") loans and $1.7 billion, or 53.1%, were fixed rate mortgage
loans. BankUnited's first mortgage loans purchased or originated are generally
repayable over 15 or 30 years. Additionally, BankUnited offers 40 year ARM loans
on a limited basis. Residential loans typically remain outstanding for shorter
periods than their contractual maturities because borrowers prepay the loans in
full upon sale of the mortgaged property or upon refinancing of the original
loan.
BankUnited's ARMs generally have interest rates that adjust after an
initial 1 month, 3 month, or 3, 5 or 7 year fixed-rate term ("hybrid" ARMs) and,
to a lesser extent, semi-annually or annually with subsequent interest rate
adjustments at a margin over the One-Year CMT or the 12 month moving average of
the monthly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year published by the Federal Reserve ("MTA's"). Further, a
portion of these ARMs provide for initial rates of interest which are
significantly below the rates which would prevail were the contractual interest
rate index and margin used for repricing applied initially. Such loans are
commonly referred to as being in their teaser rate period. These loans adjust to
the contractual rate on the first scheduled interest rate adjustment date. The
maximum interest rate adjustment of BankUnited's ARMs is generally 1%
semi-annually and 6% over the life of the loan, above or below the initial rate
on the loan for semi-annual adjustable, or 2% annually and 6% over the life of
the loan, above or below the initial rate on the loan for annual adjustable and
hybrid ARMs. The maximum interest rate adjustment for Hybrid ARMs which are tied
to the MTA index range from none to 2%, periodically, and up to 11.95% over the
life of the loan.
Applicable regulations permit BankUnited to lend up to 100% of the
appraised value of the real property securing a loan ("loan-to-value ratio").
When terms are favorable, BankUnited may purchase or originate single-family
mortgage loans with loan-to-value ratios between 80% and 95%. In most of these
cases, BankUnited will, as a matter of policy, require the borrower to obtain
private mortgage insurance which insures that portion of the loan exceeding the
80% loan-to-value ratio, thereby reducing the risk to no more than 80% of
appraised value. All loans are reviewed by BankUnited's underwriters to ensure
that guidelines are met or that waivers are obtained in situations where
offsetting factors exist.
For loan originations, upon receipt of a completed loan application from an
applicant, BankUnited generally orders a credit report, confirms income,
employment and other significant information of the applicant and obtains an
appraisal of the property securing the loan. BankUnited obtains the appraisal of
the property from an independent third party to determine the adequacy of the
collateral, and such appraisal is confirmed by one of the underwriters.
9
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In its loan purchases, BankUnited generally reserves the right to reject
particular loans from a loan package being purchased and rejects loans in a
package that do not meet its commitment criteria. In determining whether to
purchase a loan, BankUnited assesses both the borrower's ability to repay the
loan and the adequacy of the proposed collateral. In determining the borrower's
ability to repay, BankUnited reviews information concerning the income,
financial condition, employment and credit history of the applicant and
generally obtains a credit report on the borrower separate from that provided by
the loan seller. BankUnited reviews the appraisal obtained by the loan seller or
originator and, based upon pre-determined criteria and review of the loan file,
may arrange for an updated review appraisal before purchasing the loan. An
appraisal will generally be ordered if the property securing the loan is located
in a designated area (such as a geographic region known for fluctuating property
values), if the loan size or loan-to-value ratio meets certain thresholds, or
if an underwriter or other Bank officer, upon review of the loan file,
determines that it is prudent to order an appraisal. With respect to a
substantial percentage of loans purchased, the collateral value is confirmed by
reference to a review appraisal. Otherwise, the collateral value is determined
by reference to the documentation contained in the original file. A legal review
of every loan file is conducted to determine the adequacy of the legal
documentation. BankUnited receives various representations and warranties from
the sellers of the loans regarding the quality and characteristics of the loans.
BankUnited has adopted written, non-discriminatory underwriting standards
for use in the underwriting and review of every loan considered for origination
or purchase. These underwriting standards are reviewed and approved annually by
BankUnited's Board of Directors. BankUnited's underwriting standards for
residential mortgage loans generally conform to standards established by the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation (the "FHLMC"), except that BankUnited's underwriting
standards allow it to make loans (i) to non-resident aliens, as discussed below,
(ii) exceeding the FNMA or FHLMC limits, and (iii) in cases where specific
characteristics of the loan or borrower may compensate for the lack of
conformity with the FNMA or FHLMC criteria.
Borrowers are required to obtain casualty insurance and, if applicable,
flood insurance in amounts at least equal to the outstanding loan balance or the
maximum amount allowed by law. BankUnited also requires that a survey be
conducted and title insurance be obtained, insuring the priority of its mortgage
lien.
BankUnited originates first mortgage loans to non-resident aliens in a
manner similar to that described above for other residential loans. At September
30, 2000, approximately $445.6 million, or 12%, of the BankUnited's loan
portfolio before net items were first mortgage loans to non-resident aliens
secured by single-family residences located in Florida. Loans to non-resident
aliens generally afford BankUnited an opportunity to receive rates of interest
higher than those available from other single-family residential loans.
Nevertheless, certain aspects of such loans may involve a greater degree of risk
than conforming single-family residential mortgage loans. The ability to obtain
access to the borrower is more limited for non-resident aliens, as is the
ability to attach or verify assets located in foreign countries. BankUnited has
attempted to minimize these risks through its underwriting standards for such
loans including generally more conservative loan-to-value ratios and
qualification based on verifiable assets located in the United States.
Commercial Real Estate and Multi-Family Lending. BankUnited's commercial
real estate lending division originates or participates in multi-family and
commercial real estate loans. BankUnited sells a participating interest in the
majority of the larger loans for risk management purposes in the normal course
of business. The lending policy limits the Bank's risk to $25 million for a
single loan and no more than $40 million to a single borrower. BankUnited's
strategy is to promote commercial lending together with private banking, as both
areas seek to develop long-term relationships with select businesses, real
estate investors, and professionals. At September 30, 2000, BankUnited had
$226.4
10
<PAGE>
million of commercial real estate loans and multi-family loans, representing a
total of 6.17% of BankUnited's loan portfolio before net items.
BankUnited's commercial real estate loan portfolio includes loans secured
by apartment buildings, office buildings, industrial/warehouses, retail centers
and other properties, which are located in BankUnited's primary market area.
Commercial real estate loans generally are originated in amounts up to 75% of
the appraised value of the property securing the loan. Because commercial real
estate and commercial lending requests are generally more complicated and
involve larger dollar amounts, evaluation of such credit requests continues to
rely on traditional credit analysis, including income projection, participation
by the buyer, breakeven analysis and internal and external collateral
evaluations. In determining whether to originate or purchase multi-family or
commercial real estate loans, BankUnited also considers such factors as the
financial condition and track record of the borrower, and the debt service
coverage of the property. Commercial real estate loans are made at both fixed
and adjustable interest rates, typically for terms of less than 60 months, but
may be up to 15 years.
Loans secured by commercial real estate and multi-family properties
generally involve a greater degree of risk than one-to-four family residential
mortgage loans. Commercial real estate loans typically involve large loan
balances concentrated with single borrowers or groups of related borrowers. In
addition, the payment experience on loans secured by income-producing properties
usually depends on the successful operation of the real estate project that
secures the loans and, thus, may be subject, to a greater extent, to adverse
conditions in the real estate market or in the economy, particularly the
interest rate environment.
Real Estate Construction Lending. BankUnited makes real estate construction
loans to individuals for the construction of their residences, as well as to
builders and real estate developers for the construction of one-to-four-family
residences and commercial and multi-family real estate. At September 30, 2000,
BankUnited had $38.8 million of construction loans representing a total of 1.1%
of BankUnited's loan portfolio before net items. Construction loans to
individuals for their private residences are structured to be converted to
permanent loans with the Bank at the end of the construction phase. Such
residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent residential mortgage loans. The Bank's
residential construction loans typically have terms of up to nine months and
have rates higher than permanent residential mortgage loans offered by the Bank.
During the construction phase, the borrower pays interest only. Generally, the
maximum loan-to-value ratio of an owner occupied single-family construction loan
is 90%.
The Bank makes construction loans on commercial real estate projects
secured by apartments, retail centers, industrial warehouse properties, office
buildings, medical facilities or other property. These loans are structured to
be converted to permanent loans at the end of the construction phase, which
generally runs from 12 to 24 months. These construction loans have rates, which
are higher than permanent commercial real estate loans currently offered by the
Bank and the terms are generally consistent with those of permanent loans. These
loans generally provide for the payment of interest and loan fees from loan
proceeds. The loans are underwritten to the same standards as commercial real
estate loans described above. Because of the uncertainties inherent in
estimating construction costs and the market for the project upon completion, it
is often difficult to determine the total loan funds that will be required to
complete a project, the related loan-to-value ratios and the likelihood of
ultimate success of a project. Construction loans to borrowers other than
owner-occupants also involve many of the same risks discussed above regarding
commercial real estate loans and tend to be more sensitive to general economic
conditions than many other types of loans.
Land. BankUnited makes land loans to individuals for the purchase of land
for their residences, as well as to builders and real estate developers for
purchase of land for future commercial development.
11
<PAGE>
Generally, the Bank requires for all land loans that they be developed within
twelve to eighteen months. As a matter of policy the Bank does not make
speculative land loans. At September 30, 2000, BankUnited had $34.5 million of
land loans representing a total of 0.9% of BankUnited's loan portfolio before
net items.
Commercial Business and Small Business Lending. Commercial and small
business loans totaled $83.0 million as of September 30, 2000, representing 2.3
% of total loans before net items. Commercial business loans are made to
companies with annual sales revenue in excess of $5.0 million in BankUnited's
market area. Small business loans are made to companies with annual sales
revenue less than $5.0 million and the loans do not typically exceed $1.0
million. BankUnited also offers payroll and merchant services through outside
vendors, as well as in-house treasury management services. BankUnited makes both
secured and unsecured loans, although the majority of these loans are on a
secured basis. Accounts receivable, inventory, equipment, and/or general
corporate assets of the borrowers, as well as the personal guarantee of the
principal typically secure the loans. The loans typically have fixed and
variable prime-based interest rates and are originated for terms ranging from 1
to 5 years. In its loan underwriting, BankUnited evaluates the value of the
collateral securing the loan and assesses the borrower's creditworthiness and
ability to repay. A credit scoring approval is used, and exceptions to credit
policy guidelines are discouraged, but may be available depending on all the
circumstances. While these loans generally are made for shorter terms and at
higher yields than one-to-four-family residential loans, such loans generally
involve a higher level of risk than one-to-four-family residential loans because
the risk of borrower default is greater and the collateral may be more difficult
to liquidate and more likely to decline in value.
Consumer Lending. Consumer loans totaled $66.5 million as of September 30,
2000, representing 1.8% of total loans before net items. This portfolio consists
primarily of automobile loans and home equity lines of credit. During fiscal
1999, BankUnited ceased its strategy of purchasing indirect paper from auto
dealers and shifted its emphasis to primarily home equity lines and consumer
loans. Consumer loans, with the exception of home equity lines of credit, are
offered primarily on a fixed-rate, short-term basis. The underwriting standards
employed by BankUnited for consumer loans include a determination of the
applicant's payment history on other debts, an assessment of the borrower's
ability to make payments on the proposed loan and other indebtedness and a
review of the value of the security. In addition, BankUnited utilizes an on-line
application and credit scoring system to assist in determining an applicant's
creditworthiness. BankUnited's consumer loans tend to have higher interest rates
and shorter maturities than one-to-four family residential loans because the
risk of borrower default is greater and the collateral is more likely to decline
in value.
BankUnited's home equity lines of credit are originated on owner-occupied,
one-to-four family residential properties. These loans are generally limited to
aggregate outstanding indebtedness secured by up to 90% of the appraised value
of the property. Such lines are underwritten based upon guidelines established
by BankUnited in order to evaluate the borrower's ability and willingness to
repay the debt.
Asset Quality
Federal regulations require a savings institution to review its assets on a
regular basis and, if appropriate, to classify assets as "substandard,"
"doubtful," or "loss" depending on the likelihood of loss. General allowances
for loan losses are required to be established for assets classified as
substandard or doubtful. For assets classified as loss, the institution must
either establish specific allowances equal to the amount classified as a loss or
charge off such amount. Assets that do not require classification as substandard
but that possess credit deficiencies or potential weaknesses deserving
management's close attention are required to be designated as "special mention."
The deputy director of the appropriate OTS regional office may approve,
disapprove or modify any classifications of assets and any allowance for
12
<PAGE>
loan losses established. BankUnited's Portfolio Management Committee reviews and
classifies BankUnited's assets and reports the results to the Board of Directors
monthly.
Additionally, under standard banking practices, an institution's asset
quality is also measured by the level of non-performing loans in the
institution's portfolio and real estate acquired in foreclosure ("REO").
Non-performing loans consist of (i) non-accrual loans; (ii) loans that are more
than 90 days contractually past due as to interest or principal but that are
well-secured and (iii) loans that have been renegotiated to provide a deferral
of interest or principal because of a deterioration in the financial condition
of the borrower. BankUnited issues delinquency notices to borrowers when loans
are 30 or more days past due, and places these loans on non-accrual status when
more than 90 days past due. When a loan is placed on non-accrual status,
BankUnited reverses all accrued and uncollected interest and also begins
appropriate legal procedures to obtain repayment of the loan or otherwise
satisfy the obligation.
As of September 30, 2000, BankUnited had $23.9 million in substandard
assets of which $23.5 million are classified as non-performing assets.
Substandard assets consisted of the following:
As of September 30, 2000
------------------------
(in thousands)
One-to-four family residential loans ............... $13,073
Multi-family residential ........................... 557
Commercial real estate ............................. 1,579
Land ............................................... 1,104
Commercial business and consumer loans ............. 5,260
REO ................................................ 2,286
-------
Total Substandard Assets ......... $23,859
=======
In addition, $517,000 of commercial business loans for which reserves have
been established were classified as loss as of September 30, 2000.
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in BankUnited's loan
portfolio including the economic trends and other conditions in specific
geographic areas as they relate to the nature of BankUnited's portfolio.
BankUnited's one-to four family residential loans and consumer loans are
homogeneous in nature and no single loan is individually significant in terms of
its size or potential risk of loss. Therefore, management evaluates these loans
as a group of loans. Management utilizes historical loan losses, current trends
in delinquencies and charge-offs, plans for problem loan administration and
resolution, the views of its regulators, and other relevant factors, such as
assumptions and projections of future conditions in order to determine the
adequacy of the allowance for loan losses on these loans. For commercial real
estate loans, an estimated value of the property or collateral securing the loan
is determined through an appraisal, where possible. In instances where
BankUnited has not taken possession of the property or does not otherwise have
access to the premises and therefore cannot obtain an appraisal, a real estate
broker's opinion as to the value of the property is obtained based primarily on
a drive-by inspection. If the unpaid balance of the loan is greater than the
estimated fair value of the property, a reserve is established for the
difference between the carrying value and the estimated fair value. Other loans
such as non-mortgage commercial loans are evaluated individually as well. For
these loans, a determination is made of the value of the collateral, if any,
through examination of current financial information. If the unpaid balance of
the loan is greater than estimated fair value of the property, a reserve is
established for the difference between the carrying value and the estimated fair
value.
13
<PAGE>
General valuation allowances are also established on all classes of the
performing portfolio and represent loss allowances that have been established to
recognize the unspecified losses inherent in the loan portfolio. In determining
the adequacy of the unallocated reserves, management considers changes in the
size and composition of the loan portfolio, historical loan loss experience,
current and anticipated economic conditions and BankUnited's credit
administration and asset management philosophies and procedures.
The above-described method of establishing an adequate provision for the
allowance for loan losses inherently lacks precision. Because of the many
factors that can affect recoverability, the estimated loss on an individual loan
or group of loans may not be the same as the ultimate loss, if any, actually
sustained. BankUnited performs the reserve analysis on a monthly basis which
provides a mechanism for ensuring that estimated losses reasonably approximate
ultimate losses, as any differences between estimated losses and ultimate losses
will be immediately addressed in the evaluation and resulting loan loss
provision. See "Management Discussion and Analysis of Financial Condition and
Results of Operations - Asset Quality."
Investments and Mortgage-backed Securities
BankUnited maintains an investment portfolio consisting primarily of
federal agency securities, trust preferred securities and tax certificates.
Federal regulations limit the instruments in which BankUnited may invest its
funds. BankUnited's current investment policy permits purchases primarily of
investments rated in one of the three highest grades by a nationally recognized
rating agency.
Mortgage-backed securities are primarily acquired for their liquidity,
yield, and credit characteristics. Such securities may be used as collateral for
borrowing or pledged as collateral for certain deposits, including public funds
deposits. Mortgage-backed securities acquired include fixed and adjustable rate
agency securities (GNMA, FNMA and FHLMC), private issue securities and
collateralized mortgage obligations.
BankUnited's portfolio also includes tax certificates issued by various
counties in the State of Florida. Tax certificates represent tax obligations
that are auctioned by county taxing authorities on an annual basis in order to
collect delinquent real estate taxes. Although tax certificates have no stated
maturity, the certificate holder has the right to collect the delinquent tax
amount, plus interest, and can file for a tax deed if the delinquent tax amount
is unpaid at the end of two years. Tax certificates have a claim superior to
most other liens. If the holder does not file for deed within seven years, the
certificate becomes null and void. BankUnited discontinued purchasing tax
certificates in fiscal 1999.
Also included in BankUnited's investment portfolio are trust preferred
securities issued by affiliates of FDIC-insured financial institutions or their
holding companies. Such securities are primarily acquired for their liquidity
and yield characteristics.
14
<PAGE>
The following table sets forth information regarding BankUnited's
investments and mortgage-backed securities as of the dates indicated. Amounts
shown are carrying value. For additional information regarding BankUnited's
investments and mortgage-backed securities, including the carrying values and
approximate market values of such securities, see Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
As of September 30
----------------------------------
2000 1999 1998
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Federal agency securities ............................ $ 5,341 $ 6,752 $ 22,188
Tax Certificates ..................................... 5,699 14,815 40,007
Mortgage-backed securities ........................... 342,355 347,224 345,756
Other (1) ............................................ 17,124 18,307 16,015
-------- -------- --------
Total investment securities ............ $370,519 $387,098 $423,966
======== ======== ========
Weighted average yield ................. 6.93% 6.74% 6.61%
======== ======== ========
</TABLE>
(1) Includes $14.3 million, $14.7 million and $15.5 million of trust preferred
securities of other issuers as of September 30, 2000, 1999 and 1998,
respectively.
The following table sets forth information regarding the maturities of
BankUnited's investments as of September 30, 2000. Amounts shown are carrying
value:
<TABLE>
<CAPTION>
Periods to Maturity
from September 30, 2000
As of ------------------------------------------------------------
September 30, Within 1 Through 5 Through Over 10 Equity
2000 1 Year 5 Years 10 Years Years Securities
-------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency securities ........... $ 5,341 $ 341 $ 5,000 $ -- $ -- $ --
Tax certificates (1) ................ 5,699 5,699 -- -- -- --
Mortgage-backed securities (1)....... 342,355 1,827 6,838 2,818 330,872 --
Other ............................... 17,124 -- 25 -- 14,309 2,790
-------- -------- -------- -------- -------- --------
Total ................. $370,519 $ 7,867 $ 11,863 $ 2,818 $345,181 $ 2,790
======== ======== ======== ======== ======== ========
Weighted average yield .............. 6.93% 7.09% 6.19% 6.29% 6.25% N/A
======== ======== ======== ======== ======== ========
</TABLE>
--------------
(1) Maturities are based on historical experience.
15
<PAGE>
Mortgage Loan Servicing
BankUnited's mortgage loans servicing agreements generally provide for loan
servicing fees ranging from 0.25% to 0.50% per annum of the declining principal
amount of the loans, plus any late charges or other ancillary fees. Loan
servicing fees for loans serviced under mortgage-backed securities programs are
either subject to negotiation with the sponsoring agency or in certain instances
set by the sponsoring agency. Servicing fees for loans sold to private investors
are determined by agreement with the investor. Income from servicing is
calculated based upon the contractual servicing fee, net of amortization of the
carrying value of the mortgage servicing rights. At September 30, 2000 and 1999
BankUnited serviced mortgage loans for investors with unpaid principal balances
of approximately $343.6 million and $421.8 million respectively, which are not
reflected in the accompanying Consolidated Statements of Financial Condition.
BankUnited is subject to certain costs and risks related to servicing
delinquent loans. Servicing agreements relating to the mortgage-backed security
programs of FNMA and FHLMC require the servicer to advance funds to make
scheduled payments of interest, taxes and insurance, and in some instances
principal, if such payments have not been received from the borrowers. However,
BankUnited recovers substantially all of the advanced funds upon cure of default
by the borrower, or through foreclosure proceedings and claims against agencies
or companies that have insured or guaranteed the loans. Certain servicing
agreements for loans sold directly to other investors require BankUnited to
remit funds to the loan purchaser only upon receipt of payments from the
borrower and, accordingly, the investor bears the risk of loss. BankUnited,
however, is subject to the risk that declines in the market rates of interest
for mortgage loans or other economic conditions will result in a revaluation of
its servicing assets as borrowers refinance or otherwise prepay higher interest
rate loans (See "Item 7a. Quantitative and Qualitative Disclosure about Market
Risk").
Sources of Funds
BankUnited's primary sources of funds for its investment and lending
activities are customer deposits, loan repayments, funds from operations,
BankUnited's capital (including trust preferred securities), Senior Notes and
FHLB advances.
Deposits. BankUnited offers a full variety of deposit accounts ranging from
passbook accounts to certificates of deposit with maturities of up to five
years. BankUnited also offers transaction accounts, which include personal and
commercial checking accounts, negotiable order of withdrawal ("NOW") accounts,
insured money market deposit accounts and the Diamond Program accounts. The
Diamond Program is a package account that offers a suite of financial services.
The rates paid on deposits are established periodically by management based on
BankUnited's need for funds and the rates being offered by BankUnited's
competitors with the goal of remaining competitive without offering the highest
rates in the market area.
BankUnited has placed increasing reliance on passbook accounts, money
market accounts, short term certificates of deposit and other savings
alternatives that are more responsive to market conditions than long-term,
fixed-rate certificates. While market-sensitive savings instruments permit
BankUnited to reduce its cost of funds during periods of declining interest
rates, such savings instruments also increase BankUnited's vulnerability to
periods of high interest rates. There are no regulatory interest rate ceilings
on BankUnited's accounts (See "Item 7a. Quantitative and Qualitative Disclosure
about Market Risk").
16
<PAGE>
The following table sets forth information concerning BankUnited's deposits
by account type and the weighted average nominal rates at which interest is paid
thereon as of the dates indicated:
<TABLE>
<CAPTION>
As of September 30,
-----------------------------------------------------------------------
2000 1999 1998
-------------------- ---------------------- ---------------------
Amount Rate Amount Rate Amount Rate
---------- ----- ---------- ----- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts................................... $ 324,894 4.86% $ 379,503 4.57% $ 258,158 4.72%
---------- ---------- ----------
Checking:
Non-interest bearing.............................. 72,253 - 50,075 -- 46,748 --
NOW accounts...................................... 116,032 2.73% 125,617 2.75% 71,431 3.26%
Insured money market.............................. 90,531 4.79% 92,785 4.04% 115,104 4.05%
---------- ---------- ----------
Total transaction accounts..................... 278,816 268,477 233,283
---------- ---------- ----------
Total passbook and checking accounts........... 603,710 647,980 491,441
---------- ---------- ----------
Certificates:
30 - 89 day certificates of deposit............... 1,128 3.83% 2,260 4.40% 3,485 4.63%
3 - 5 month certificates of deposit............... 19,547 5.66% 28,943 4.63% 96,221 5.20%
6 - 8 month certificates of deposit............... 130,461 6.09% 273,090 4.92% 516,674 5.47%
9 - 11 month certificates of deposit.............. 280,019 6.45% 138,684 5.26% 104,296 5.69%
12 - 17 month certificates of deposit............. 776,084 6.33% 688,792 5.21% 618,385 5.62%
18 - 23 month certificates of deposit............. 184,924 6.18% 83,369 5.55% 9,770 5.64%
24 - 29 month certificates of deposit............. 148,593 5.85% 102,394 5.66% 35,497 5.76%
30 - 35 month certificates of deposit............. 32,493 6.09% 26,550 5.97% 15,040 5.89%
36 - 60 month certificates of deposit............. 151,279 6.18% 109,686 6.13% 72,856 6.07%
Public Funds...................................... 281,300 6.02% 178,050 4.98% 86,159 5.35%
Brokered certificates of deposit.................. -- -- 75,000 5.66%
---------- ---------- ----------
Total certificates............................. 2,005,828 1,631,818 1,633,383
---------- ---------- ----------
Totals..................................... $2,609,538 $2,279,798 $2,124,824
========== ========== ==========
Weighted average rates............. 5.67% 4.83% 5.18%
</TABLE>
17
<PAGE>
The following table sets forth information by various categories regarding
the amount of BankUnited's certificate accounts (under $100,000) as of September
30, 2000 that mature during the period indicated.
<TABLE>
<CAPTION>
Periods to Maturity
from September 30, 2000
As of ----------------------------------------------------
September 30, Within 1 to 2 to More than
2000 1 Year 2 Years 3 Years 3 Years
---------- ---------- ---------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Certificate accounts
3.00% to 3.99% ....................... $ 1,134 $ 1,134 $ -- $ -- $ --
4.00% to 4.99% ....................... 44,341 43,745 360 27 209
5.00% to 5.99% ....................... 401,608 360,908 23,341 4,793 12,566
6.00% to 6.99% ....................... 729,879 551,096 133,570 29,881 15,332
7.00% to 7.99% ....................... 156,660 87,102 57,825 9,795 1,938
---------- ---------- ---------- --------- ----------
Total certificate accounts
(under $100,000) ................... $1,333,622 $1,043,985 $ 215,096 $ 44,496 $ 30,045
========== ========== ========== ========= ==========
</TABLE>
The following table sets forth information by various rate categories
regarding the amounts of the BankUnited's jumbo ($100,000 and over) certificate
accounts as of September 30, 2000 that mature during the periods indicated.
<TABLE>
<CAPTION>
Periods to Maturity
from September 30, 2000
As of --------------------------------------------
September 30, Within 1 to 2 to More than
2000 1 Year 2 Years 3 Years 3 Years
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Jumbo certificate accounts
3.00% to 3.99% ....................... $ -- $ -- $ -- $ -- $ --
4.00% to 4.99% ....................... 92,983 66,580 16,298 10,105 --
5.00% to 5.99% ....................... 138,626 109,883 23,703 2,837 2,203
6.00% to 6.99% ....................... 253,314 217,939 25,760 5,200 4,415
7.00% to 7.99% ....................... 187,283 144,377 33,291 7,146 2,469
-------- -------- -------- -------- --------
Total Jumbo certificate accounts ..... $672,206 $538,779 $ 99,052 $ 25,288 $ 9,087
======== ======== ======== ======== ========
</TABLE>
Included in the table of jumbo certificate accounts above, are $281.3
million in certificates of deposit issued to the State of Florida, referred to
as public funds, which have interest rates ranging from 4.19% to 7.21%. These
certificates are collateralized with GNMA, FNMA, and FHLMC mortgage backed
securities with market values of approximately $147 million at September 30,
2000.
Of BankUnited's total deposits, excluding public funds, at September 30,
2000, 1999 and 1998, 16.8%, 13%, and 12.3%, respectively, were deposits of
$100,000 or more issued to the general public. Although jumbo certificates of
deposit are generally more rate sensitive than smaller size deposits, management
believes that BankUnited will retain many of these deposits.
18
<PAGE>
Borrowings. When BankUnited's primary sources of funds are not sufficient
to meet deposit outflows, loan originations and purchases and other cash
requirements, BankUnited may borrow funds from the FHLB of Atlanta and from
other sources. The FHLB system acts as an additional source of funding for
financial institutions. In addition, BankUnited uses subordinated notes,
securities sold under agreements to repurchase and trust preferred securities in
order to increase available funds.
FHLB borrowings, known as "advances," are made on a secured basis, and the
terms and rates charged for FHLB advances vary in response to general economic
conditions. As a shareholder of the FHLB of Atlanta, the Bank is authorized to
apply for advances from this bank. FHLB of Atlanta offers a wide variety of
borrowing plans, each with its own maturity and interest rate. A significant
portion of BankUnited's advances were obtained through a convertible advances
program that permits the FHLB to convert an advance from a fixed-rate basis to a
floating-rate basis at its discretion on a specified "call" date which generally
occurs every three months following an initial period ranging from three months
to three years. Should the FHLB elect to exercise this option, BankUnited can
either accept the converted advance or repay it in full.
BankUnited also has advances under the FHLB "knockout" advance program. In
general, a knockout advance is structured as a fixed rate advance that the FHLB
may convert to a floating rate indexed to the 3-month LIBOR rate if, at the end
of any given three month period after the non-conversion period, the 3-month
LIBOR rate equals or exceeds an agreed upon threshold rate. Should a particular
advance be converted by the FHLB, its rate will reset quarterly for the
remainder of the term.
The FHLB of Atlanta will consider various factors, including an
institution's regulatory capital position, net income, quality and composition
of assets, lending policies and practices, and level of current borrowings from
all sources, in determining the amount of credit to extend to an institution. In
addition, an institution that fails to meet the qualified thrift lender test may
have restrictions imposed on its ability to obtain FHLB advances. The Bank
currently meets the qualified thrift lender test.
During the 1997 and 1998 fiscal years, BankUnited issued an aggregate of
$227.2 million in Junior Subordinated Deferrable Interest Debentures, which were
purchased by its Delaware trust subsidiaries primarily with proceeds from the
sale of trust preferred securities. See Notes to Consolidated Financial
Statements for a description of the Junior Subordinated Deferrable Interest
Debentures and the trust preferred securities. In November 1999, the Board of
Directors of BankUnited authorized the purchase from time to time in the open
market, or otherwise, of up to 300,000 shares of trust preferred securities
issued by BankUnited's trust subsidiaries. As of September 30, 2000 BankUnited
had purchased a total of 158,499 shares of trust preferred securities issued by
its trust subsidiaries on the open market at a cost of $4.4 million.
During November 1998, the Bank established a medium-term note program which
permits the issuance, from time to time, of up to a total of $500 million
aggregate principal amount of the Senior Notes, with maturities from 9 months to
10 years from the date of issuance. As a condition of issuance, interest,
principal and any redemption premium on all offered Senior Notes are supported
by an irrevocable standby letter of credit of the FHLB of Atlanta. The Senior
Notes provide an additional source of funding, potentially with longer
maturities with attractive rates. In February 1999, the Bank issued and sold
$200 million of Senior Notes that mature five years from the date of issuance
and bear interest at an annual rate of 5.40% payable semiannually. The Bank used
the net proceeds from the sale of the notes for general corporate purposes, loan
financing, and assisting in the Bank's asset/liability management. The notes
have been rated "Aaa" by Moody's Investors Service, Inc. and "AAA" by Standard
and Poor's Rating Services.
Securities sold under agreements to repurchase is another source of
borrowed funds which is available to BankUnited. Under this type of borrowing,
securities are pledged against borrowed funds and are released when the funds
are repaid. BankUnited uses this type of borrowing alternative short term as
maturities are
19
<PAGE>
usually within thirty to sixty days from inception. At September 30, 2000
BankUnited held $9.2 million in repurchase agreements which matured overnight
and had $11.1 million in investments and mortgage-backed securities pledged
against these agreements.
The following tables set forth information as to BankUnited's borrowings as
of the dates and for the periods indicated.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ----- ---------- ----- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Period End Balances:
FHLB advances (1) ........................... $1,251,426 6.28% $1,096,447 5.46% $1,021,466 5.61%
Company obligated mandatorily
redeemable Trust Preferred
Securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures of
BankUnited(2) ............................ 212,393 9.53% 218,500 9.53% 218,500 9.53%
Senior notes ................................ 200,000 5.40% 200,000 5.40% -- --
Securities sold under agreements
to repurchase(3) ......................... 9,205 6.42% 31,701 5.34% 121,148 5.43%
---------- ----- ---------- ----- ---------- -----
Total borrowings ......................... $1,673,024 6.47% $1,546,648 6.02% $1,361,114 6.22%
========== ===== ========== ===== ========== =====
<CAPTION>
For the Year Ended September 30,
-----------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ----- ---------- ----- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Average Balances:
FHLB advances (1) ........................... $1,008,161 5.88% $ 917,560 5.41% $ 901,269 5.64%
Company obligated mandatorily
redeemable Trust Preferred
Securities of subsidiary trusts
holding solely junior subordinated
deferrable interest debentures of
BankUnited(2) ............................ 215,600 9.69% 218,500 9.68% 173,288 9.81%
Senior notes ................................ 200,000 5.71% 132,055 5.76% -- --
Securities sold under agreements
to repurchase(3) ......................... 10,621 8.23% 25,311 5.86% 97,292 5.69%
---------- ----- ---------- ----- ---------- -----
Total borrowings ......................... $1,434,382 6.45% $1,293,426 6.18% $1,171,849 6.26%
========== ===== ========== ===== ========== =====
</TABLE>
-----------------
(1) The maximum amount of FHLB advances outstanding during the years ended
September 30, 2000, 1999 and 1998 was $1.3 billion, $1.1 billion, $1.3
billion, respectively.
(2) The maximum amount of trust preferred securities outstanding was $218.5
million during the years ended September 30, 2000, 1999, and 1998.
(3) The maximum amount of securities sold under agreements to repurchase at any
month-end during the years ended September 30, 2000, 1999, and 1998 was
$30.8 million, $96.9 million, and $192.6 million, respectively.
20
<PAGE>
Activities of Subsidiaries
T&D Properties of South Florida, Inc., a Florida corporation ("T&D"), is a
wholly owned operating subsidiary of the Bank that invests in tax certificates
and holds title to, maintains, manages and supervises the disposition of real
property acquired through tax deeds. T&D was established in 1991 for the purpose
of insulating the Bank from risk of liability concerning the maintenance,
management and disposition of real property.
Bay Holdings, Inc., a Florida corporation ("Bay Holdings"), is a wholly
owned operating subsidiary of the Bank that holds title to, maintains, manages
and supervises the disposition of one-to-four family residential property
acquired through foreclosure. Bay Holdings was established in 1994 for the
purpose of insulating the Bank from risk of liability concerning maintenance,
management and disposition of one-to-four family residential property.
BankUnited Mortgage Corporation, a Florida corporation ("BMC"), is a wholly
owned operating subsidiary of BankUnited which was established in 1996 for the
purpose of servicing loans secured by real property. BMC is currently inactive.
BankUnited Capital, BankUnited Capital II and BankUnited Capital III (the
"Trusts") are Delaware statutory business trusts wholly owned by BankUnited.
BankUnited Capital was formed in 1996, and BankUnited Capital II and BankUnited
Capital III were formed in 1997, for the purpose of issuing Trust Preferred
Securities and investing the proceeds in Junior Subordinated Deferrable Interest
Debentures issued by BankUnited.
BUFC Financial Services, Incorporated, a Florida corporation (BUFC), is a
wholly owned operating subsidiary of BankUnited organized in 1997 for the
purpose of selling annuities, insurance and securities products. BUFC sells
fixed and variable annuities and mutual funds to customers of the Bank and
others. Licensed insurance agents/registered securities representatives under
the supervision of a registered broker-dealer conduct the program separate from
the business of the Bank. BUFC also sells long-term care insurance products.
CRE America, Inc. formerly BankUnited Financial Services, Inc., a Florida
corporation, is a wholly owned operating subsidiary of BankUnited, organized in
1997, renamed in 2000, for the purpose of brokering loans.
CRE Properties, Inc., a Florida corporation, is a wholly owned operating
subsidiary of the Bank that holds title to, and maintains, manages and
supervises the disposition of commercial real estate acquired through
foreclosure. CRE Properties, Inc. was established in 1998 for the purpose of
insulating the Bank from risk of liability concerning maintenance, management
and disposition of commercial real estate.
Employees
At September 30, 2000, BankUnited had 475 full-time equivalent employees.
BankUnited's employees are not represented by a collective bargaining group, and
BankUnited considers its relations with its employees to be excellent.
BankUnited provides employee benefits customary in the savings industry, which
include group medical, dental and life insurance, a 401(k) profit sharing plan
and paid vacations. BankUnited also provides incentive compensation plans
(including stock bonus and stock option plans) for officers, directors and
employees.
21
<PAGE>
REGULATION
General
BankUnited is a unitary savings and loan holding company and is subject to
OTS regulations, examination, supervision and reporting requirements pursuant to
certain provisions of the Home Owners' Loan Act (the "HOLA") and the Federal
Deposit Insurance Act (the "FDIA"). As an insured institution and a subsidiary
of a savings and loan holding company, the Bank is subject to extensive
regulation and examination by the OTS, its primary federal regulator and its
deposit accounts are insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Savings Association Insurance Fund (the "SAIF").
Savings and Loan Holding Company Regulations
Activities Limitations. Because BankUnited is a unitary savings and loan
holding company which was in existence or applied for before May 4, 1999, and
the Bank meets the definition of a qualified thrift lender ("QTL"), as discussed
below, BankUnited generally has the broadest authority to engage in various
types of business activities, including nonfinancial activities. The
Gramm-Leach-Bliley Act ("GLB"), which became law in November 1999 prohibits
companies that become unitary savings and loan holding companies pursuant to an
application filed with the OTS after May 4, 1999 from engaging in nonfinancial
activities or affiliating with nonfinancial entities. In addition, a holding
company that acquires another institution and maintains it as a separate
subsidiary or whose sole subsidiary fails to meet the QTL test will become
subject to the activities limitations applicable to multiple savings and loan
holding companies.
The Director of the OTS has oversight authority for all holding company
affiliates, and is authorized under federal law to take enforcement action if
there is reasonable cause to believe that the continuation by a savings bank
holding company of any particular activity constitutes a serious risk to the
financial safety, soundness, or stability of the holding company's subsidiary
savings institution. The Director of the OTS may, as necessary, limit the
payment of dividends by the savings institution, limit transactions between the
savings institution, the holding company and the subsidiaries or affiliates of
either or limit any activities of the savings institution that might create a
serious risk that the liabilities of the holding company and its affiliates may
be imposed on the savings institution.
Transactions with Affiliates. Transactions between the Bank and its
affiliates are regulated under the HOLA and OTS regulations, which incorporate
Sections 23A, 23B, 22(g) and 22(h) of the Federal Reserve Act and Regulation O
adopted by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). An "affiliate" of a savings institution generally includes
entities controlling the savings institution and entities under common control
with the institution. BankUnited and its subsidiaries, therefore, are affiliates
of the Bank under these regulations.
The laws and regulations governing affiliate transactions require that
covered transactions and certain other transactions with affiliates be on terms
and conditions consistent with safe and
22
<PAGE>
sound banking practices which are substantially the same, or at least as
favorable to the institution or its subsidiary, as those for comparable
transactions with non-affiliated parties. These laws and regulations also impose
quantitative restrictions on the amount of covered transactions in which an
institution may engage and set collateralization requirements on covered
transactions. "Covered transactions" generally include loans or extensions of
credit to an affiliate, purchases of securities issued by an affiliate,
purchases of assets from an affiliate (except as may be exempted by order or
regulation), and certain other transactions. In addition, a savings institution
is prohibited from extending credit to an affiliate (other than a subsidiary of
the institution), unless the affiliate is engaged only in activities that the
Federal Reserve Board has determined, by regulation, to be permissible for bank
holding companies. Limitations are also imposed on loans and extensions of
credit from an institution to its executive officers, directors and principal
shareholders and each of their related interests.
Acquisitions. The HOLA prohibits a savings bank holding company from
directly or indirectly acquiring, without prior OTS approval, control of a
savings association or savings association holding company, all or substantially
all of the assets of a savings association or savings association holding
company (including through an acquisition by merger, consolidation or purchase
of assets, of any savings association), or more than 5% of the voting shares of
a non-subsidiary savings association or savings association holding company. In
determining whether to approve any such transaction, the OTS will consider,
among other things, the competitive effects of the transaction, financial and
managerial resources, future prospects of the holding company and its bank or
thrift subsidiaries following the transaction, and compliance records of such
subsidiaries with the Community Reinvestment Act.
Annual Reporting and Examinations. Under HOLA and OTS regulations, a
savings bank holding company must file periodic reports with the OTS and comply
with OTS recordkeeping requirements. BankUnited is also subject to holding
company examination by the OTS.
Savings Institution Regulations
Federal savings institutions such as the Bank are chartered by the OTS, are
members of the FHLB system, and have their deposits insured by the SAIF. They
are subject to comprehensive OTS and FDIC regulations that are intended
primarily to protect depositors. Federal laws empower federal savings
institutions like the Bank to accept deposits and pay interest on them, make
loans on residential and other real estate, make limited amounts of consumer
loans and commercial loans, invest in corporate obligations, government debt
securities and other securities, offer various banking services to their
customers, and engage in, directly or through subsidiaries, activities such as
trust operations and real estate investment, subject to applicable requirements
for notice to, or approval by, the institution's primary federal regulator.
SAIF-insured, federally chartered institutions may not enter into certain
transactions unless applicable regulatory tests are met or they obtain necessary
approvals. They are also required to file reports with the OTS describing their
activities and financial condition, and periodic examinations by the OTS test
compliance by institutions with various regulatory requirements, some of which
are described below.
23
<PAGE>
Insurance of Accounts. The Bank's deposits are insured by the SAIF up to
$100,000 for each insured account holder, subject to applicable terms and
conditions, the maximum amount currently permitted by law.
As an insurer, the FDIC issues regulations and conducts examinations of its
insured members. SAIF insurance of deposits may be terminated by the FDIC, after
notice and hearing, upon a finding that an institution has engaged in unsafe and
unsound practices, cannot continue operations because it is in an unsafe and
unsound condition, or has violated any applicable law, regulation, rule, order
or condition imposed by the OTS or FDIC. When conditions warrant, the FDIC may
impose less severe sanctions as an alternative to termination of insurance. The
Bank's management does not know of any present condition pursuant to which the
FDIC would seek to impose sanctions on the Bank or terminate insurance of its
deposits.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions which the
FDIC considers well capitalized and financially sound pay the lowest premium,
while institutions that are less than adequately capitalized and of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period. The
FDIC is authorized to increase or decrease assessment rates on a semiannual
basis, up to a maximum increase or decrease of 5 basis points after aggregating
all increases and decreases, if it determines that the reserve ratio of the SAIF
will be less than the designated reserve ratio of 1.25% of SAIF insured
deposits. In setting these increased assessments, the FDIC must seek to restore
the reserve ratio to that designated reserve level, or such higher reserve ratio
as is established by the FDIC. The FDIC may also impose special assessments on
SAIF members to repay amounts borrowed from the United States Treasury or for
any other reason deemed necessary by the FDIC.
24
<PAGE>
In September 1996, Congress enacted legislation to eliminate any
competitive disadvantage between the Bank Insurance Fund (the "BIF") and SAIF
member institutions, from SAIF deposit insurance premiums, which were generally
higher than BIF deposit insurance premiums. The legislation provided for a
one-time assessment to be imposed on all deposits assessed at the SAIF rates, as
of March 31, 1995, in order to recapitalize the SAIF. As a result of the special
assessment, the Bank's deposit insurance premiums were initially reduced to 6.7
basis points, and as of 1996 the SAIF deposit assessment was reduced to zero.
These premiums are subject to change in future periods.
In addition to deposit insurance assessments, the FDIC is authorized to
collect assessments against insured deposits to be paid to the Finance
Corporation ("FICO") to service FICO debt incurred in the 1980s. The FICO
assessment rate is adjusted quarterly. Before 2000, the FICO assessment rate for
SAIF-insured deposits was five times higher than the rate for BIF-insured
deposits. Beginning in 2000, SAIF- and BIF-insured deposits are being assessed
at the same rate by FICO. During fiscal 2000, the annualized rate was $0.02
cents per $100 of insured deposits.
Regulatory Capital Requirements. OTS regulations incorporate a risk-based
capital requirement that is designed to be no less stringent than the capital
standard applicable to national banks. It is modeled in many respects on, but
not identical to, the risk-based capital requirements adopted by the FDIC.
Associations whose exposure to interest-rate risk is deemed to be above normal
will be required to deduct a portion of such exposure in calculating their
risk-based capital. The OTS may establish, on a case-by-case basis, individual
minimum capital requirements for a savings association that vary from the
requirements that otherwise would apply under the OTS capital regulations. The
OTS has not established such individual minimum capital requirements for the
Bank, and, as of September 30, 2000, the Bank exceeded all applicable regulatory
requirements. See Notes to Consolidated Financial Statements. Under current law
and regulations, there are no capital requirements directly applicable to
BankUnited.
In addition, the OTS and other federal banking regulators have established
capital levels for institutions to implement the "prompt corrective action"
provisions of the FDICIA. Based on these capital levels, insured institutions
will be categorized as well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized or critically undercapitalized.
If an institution becomes categorized as "undercapitalized" under the
definitions established by the "prompt corrective action" provisions of the
FDICIA, it will become subject to certain restrictions. The FDICIA requires
federal banking regulators, including the OTS, to take prompt corrective action
to solve the problems of those institutions that fail to satisfy their
applicable minimum capital requirements. The level of regulatory scrutiny and
restrictions imposed become increasingly severe as an institution's capital
level falls.
An institution's category depends upon where its capital levels are in
relation to relevant capital measures, which include a risk-based capital
measure, a leverage ratio capital measure, and certain other factors. A "well
capitalized" institution must have a ratio of total capital to risk-weighted
assets (a "total risk-based capital ratio") of 10% or more, a ratio of core
capital to risk-weighted assets ("Tier I risk-based capital ratio") of 6% or
more and a ratio of core capital to adjusted total assets ("Tier 1 leverage
ratio") of 5% or more, and may not be subject to any
25
<PAGE>
written agreement, order, capital directive, or prompt corrective action
directive issued by the OTS. An institution will be categorized as "adequately
capitalized" if it has a total risk-based capital ratio of 8% or more, a Tier 1
risk-based capital ratio of 4% or more, and either a leverage ratio of 4% or
more or a leverage ratio of 3% or more and a CAMEL rating of 1. Any institution
that is neither well capitalized nor adequately capitalized will be considered
undercapitalized. The Bank is a well capitalized institution under the
definitions as adopted.
In the case of an institution that is categorized as "undercapitalized," or
worse, such an institution must submit a capital restoration plan to the OTS. An
undercapitalized depository institution generally will not be able to acquire
other banks or thrifts, establish additional branches, pay dividends, or engage
in any new lines of business unless consistent with its capital plan. A
"significantly undercapitalized" institution will be subject to additional
restrictions on its affiliate transactions, the interest rates paid by the
institution on its deposits, the institution's asset growth, compensation of
senior executive officers, and activities deemed to pose excessive risk to the
institution. Regulators may also order a significantly undercapitalized
institution to hold elections for new directors, terminate any director or
senior executive officer employed for more than 180 days prior to the time the
institution became significantly undercapitalized, or hire qualified senior
executive officers approved by the regulators.
The FDICIA provides that an institution that is "critically
undercapitalized" must be placed in conservatorship or receivership within 90
days of becoming categorized as such unless the institution's regulator and the
FDIC jointly determine that some other course of action would result in a lower
resolution cost to the institution's insurance fund. Thereafter, the
institution's regulator must periodically reassess its determination to permit a
particular critically undercapitalized institution to continue to operate. A
conservator or receiver must be appointed for the institution at the end of an
approximately one-year period following the institution's initial classification
as critically undercapitalized unless a number of stringent conditions are met,
including a determination by the regulator and the FDIC that the institution has
positive net worth and a certification by such agencies that the institution is
viable and not expected to fail.
Federal law requires that the federal banking agencies risk-based capital
guidelines take into account various factors including interest rate risk,
concentration of credit risk, risks associated with nontraditional activities,
and the actual performance and expected risk of loss of multi-family mortgages.
In 1994, the federal banking agencies jointly revised their capital standards to
specify that concentration of credit and nontraditional activities are among the
factors that the agencies will consider in evaluating capital adequacy. In that
year, the OTS and FDIC amended their risk-based capital standards with respect
to the risk weighting of loans made to finance the purchase or construction of
multi-family residences. The OTS adopted final regulations adding an interest
rate risk component to the risk-based capital requirements for savings
associations such as the Bank, although implementation of the regulation has
been delayed. Management believes that the effect of including such an interest
rate risk component in the calculation of risk-adjusted capital will not cause
the Bank to cease to be well-capitalized.
The final rules establishing the capital levels for purposes of the FDICIA
also indicate that the federal regulators intend to lower or eliminate the core
capital requirement from the definitions of well capitalized, adequately
capitalized and undercapitalized after the requirement to deduct an IRR
component from total capital becomes effective. This action has not yet been
taken. See "Regulatory Capital Requirements" above.
26
<PAGE>
In addition to the foregoing prompt corrective action provisions, the
FDICIA also sets forth requirements that the federal banking agencies, including
the OTS, review their capital standards every two years to ensure that their
standards require sufficient capital to facilitate prompt corrective action and
to minimize loss to the SAIF and the BIF.
Restrictions on Dividends and Other Capital Distributions. OTS Regulations
limit the ability of savings institutions to pay dividends and make other
capital distributions. Savings institutions, such as the Bank, which are
subsidiaries of a savings and loan holding company, must provide the OTS with at
least 30 days written notice before declaring any dividend or obtaining board
approval of any capital distribution. All such capital distributions are also
subject to the OTS' right to object on safety and soundness grounds.
In addition, a savings institution must obtain prior approval from the OTS
if (i) it fails to meet certain regulatory conditions which qualify it for
expedited treatment under OTS regulations, (ii) after giving effect to the
proposed distribution, the association's capital distributions in a calendar
year would exceed its year-to-date net income plus retained net income for the
preceding two years, (iii) the association would not be at least adequately
capitalized following the distribution, or (iv) the distribution would violate a
statute, regulation, regulatory agreement or a regulatory condition to which the
association is subject. The OTS may disapprove a notice or deny an application,
in whole or in part, if the association would be undercapitalized or worse after
the distribution, if the OTS determines that the distribution raises safety or
soundness concerns, or if the distribution violates any applicable statute,
regulation, agreement between the OTS and the association or condition imposed
by an OTS-approved application or notice.
Federal Home Loan Bank System. The Bank is a member of the Federal Home
Loan Bank ("FHLB") system, which consists of 12 regional FHLBs governed and
regulated by the Federal Housing Finance Board. The FHLBs provide a central
credit facility for member institutions, The Bank, as a member of the FHLB of
Atlanta, is required to acquire and hold shares of capital stock in the FHLB of
Atlanta in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home purchase
contracts and similar obligations as of the close of each calendar year, or 5%
of its borrowings from the FHLB of Atlanta (including advances and letters of
credit issued by the FHLB on the Bank's behalf). The Bank is currently in
compliance with this requirement, with a $62.6 million investment in stock of
the FHLB of Atlanta as of September 30, 2000.
The FHLB of Atlanta makes advances to members in accordance with policies
and procedures periodically established by the Federal Housing Finance Board and
the Board of Directors of the FHLB of Atlanta. Currently outstanding advances
from the FHLB of Atlanta are required to be secured by a member's shares of
stock in the FHLB of Atlanta and by certain types of mortgages and other assets.
Eligible collateral is further limited in certain respects. Interest rates
charged for advances vary depending on maturity, the cost of funds to the FHLB
of Atlanta and the purpose of the borrowing. As of September 30, 2000, advances
from the FHLB of Atlanta totaled $1.3 billion.
Qualified Thrift Lender Test. The qualified thrift lender test measures the
proportion of a savings institution's assets invested in loans or securities
supporting residential
27
<PAGE>
construction and home ownership. A savings institution qualifies as a QTL if its
qualified thrift investments equal or exceed 65% of its portfolio assets on a
monthly average basis in nine of every 12 months. Qualified thrift investments,
include (i) certain housing-related loans and investments, (ii) certain
obligations of the FSLIC, the FDIC, the FSLIC Resolution Fund and the RTC, (iii)
loans to purchase or construct churches, schools, nursing homes and hospitals
(subject to certain limitations), (iv) consumer loans (subject to certain
limitations), (v) shares of stock issued by any FHLB, and (vi) shares of stock
issued by the FHLMC or the FNMA (subject to certain limitations). Portfolio
assets consist of total assets minus (a) goodwill and other intangible assets,
(b) the value of properties used by the savings institution to conduct its
business, and (c) certain liquid assets in an amount not exceeding 20% of total
assets.
Any savings institution that fails to become or remain a QTL must either
convert to a national bank charter or be subject to restrictions specified in
the OTS regulations. Any such savings institution that does not become a bank
will be: (i) prohibited from making any new investment or engaging in activities
that would not be permissible for national banks; (ii) prohibited from
establishing any new branch office in a location that would not be permissible
for a national bank in the institution's home state; (iii) ineligible to obtain
new advances from any FHLB; and (iv) subject to limitations on the payment of
dividends comparable to the statutory and regulatory dividend restrictions
applicable to national banks. Also, beginning three years after the date on
which the savings association ceases to be a QTL, the savings association will
be prohibited from retaining any investment or engaging in any activity not
permissible for a national bank and would be required to repay any outstanding
advances to any FHLB. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test. At September 30, 2000, the Bank exceeded
the QTL requirements.
Liquidity. OTS regulations currently require member savings institutions to
maintain for each calendar quarter an average daily balance of liquid assets
(cash and certain time deposits, securities of certain mutual funds, bankers'
acceptances, corporate debt securities and commercial paper, and specified U.S.
government, state government and federal agency obligations) equal to at least
4% of either the amount of its liquidity base at the end of the preceding
calendar quarter or the average daily balance of its liquidity base during the
preceding quarter. "Liquidity base" means the institution's net withdrawable
deposits and short-term borrowings (generally borrowings having maturities of
one year or less). The Director of the OTS may vary this liquidity requirement
from time to time within a range of 4% to 10%. Monetary penalties may be imposed
for failure to meet liquidity requirements. For the month of September 2000, the
Bank's liquidity ratio was 8.77%. The Bank is also required to maintain cash
reserve requirements at the Federal Home Loan Bank. At September 30, 2000 this
cash reserve requirement was $13.2 million.
General Lending Regulations
The Bank's lending activities are subject to federal regulation, including
the Equal Credit Opportunity Act, the Truth in Lending Act, the Real Estate
Settlement Procedures Act and the Community Reinvestment Act. Because the Bank
is a federally-chartered savings bank, the Bank generally may extend credit as
authorized under federal law, without regard to state laws purporting to
regulate or affect its credit activities, other than state contract and
commercial laws, real property laws, homestead laws, tort laws, criminal laws
and other state laws designated by the OTS.
28
<PAGE>
Community Reinvestment Act. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a financial
institution, to assess the institution's record of meeting the credit needs of
its community and to take such records into account in its evaluation of certain
applications.
Under regulations adopted by the OTS with the other federal banking
agencies, there are three tests for the evaluation of a savings institution's
performance. The lending test evaluates a savings institution's record of
helping to meet the credit needs of its assessment area through its lending
activities, by considering an institution's home mortgage, small business, small
farm, and community development lending. The investment test evaluates a savings
institution's record of helping to meet the credit needs of its assessment area
through qualified investments that benefit its assessment area or a broader
statewide or regional area including the assessment area, and the service test
evaluates a savings institution by analyzing both the availability and the
effectiveness of the institution's systems for delivering retail banking
services and the extent and innovativeness of its community development
services. Based upon the savings institution's performance under the lending,
investment and service tests, and any other tests which may be applicable to the
institution under the regulations, the OTS assigns the savings institution one
of four ratings prescribed under the regulations. The four possible ratings of
meeting community credit needs are outstanding, satisfactory, needs to improve,
and substantial noncompliance. Based upon the OTS examination in fiscal 2000,
the Bank's CRA rating is satisfactory.
Loans-to-one-borrower Limitations. The loans-to-one borrower limits
applicable to national banks also apply to savings institutions. Generally,
under current limits, loans and extensions of credit outstanding at one time to
a single borrower and not fully secured may not exceed 15% of the savings
institution's unimpaired capital and unimpaired surplus. Loans and extensions of
credit fully secured by certain readily marketable collateral may represent an
additional 10% of unimpaired capital and unimpaired surplus. As of September 30,
2000, the Bank was in compliance with the loans-to-one-borrower limitations.
Federal Reserve System
The Bank is subject to certain regulations promulgated by the Federal
Reserve Board. Pursuant to such regulations, savings institutions are required
to maintain reserves against their transaction accounts (primarily
interest-bearing and noninterest-bearing checking accounts) and non-personal
time deposits. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements
imposed by the OTS. In addition, Federal Reserve Board regulations limit the
periods within which depository institutions must provide availability for and
pay interest on deposits to transaction accounts. Depository institutions are
required to disclose their check-hold policies and any changes to those policies
in writing to customers. The Bank is in compliance with all such Federal Reserve
Board regulations.
29
<PAGE>
Numerous other regulations promulgated by the Federal Reserve Board affect
the business operations of the Bank. These include regulations relating to equal
credit opportunity, electronic fund transfers, collection of checks, truth in
lending, truth in savings and availability of funds.
Other Regulation
Regulation of Non-Banking Affiliates. BUFC Financial Services, Incorporated
("BUFC"), an insurance agency subsidiary of BankUnited doing business in the
State of Florida, sells fixed and variable annuities, mutual funds and long-term
care insurance products. BUFC's activities must comply with Florida insurance
laws and regulations, and BUFC employees are licensed insurance agents and
subject to continuing education, licensing and oversight by the Florida
Department of Insurance. In addition, BUFC's employees are also registered
representatives of Essex National Securities, Inc., a broker-dealer regulated by
the NASD. BUFC's activities are further regulated by regulations and guidelines
jointly adopted by the federal banking agencies, which specify requirements for
the sale of non-deposit insurance products, including, without limitation,
requirements pertaining to disclosures, physical separation of activities from
banking activities and due diligence and oversight functions.
Legislative and Regulatory Developments
Pursuant to the GLB, the federal banking agencies have jointly adopted a
privacy regulation with which savings institutions must comply on and after July
1, 2001. Subject to certain exceptions, the privacy regulation requires each
financial institution to give a consumer notice of its privacy policies and
practices before disclosing nonpublic personal information about the consumer to
any non-affiliated third party, to give each customer notice of its privacy
policies and procedures at the time a customer relationship is established and
annually thereafter, and to give each consumer an opt out notice and reasonable
opportunity for the customer to opt out of having his nonpublic personal
information disclosed by the financial institution to non-affiliated third
parties. The Bank is in the process of making all necessary and appropriate
preparations to comply with the new privacy requirements.
TAXATION
BankUnited reports its income and expenses under an accrual method of
accounting and, prior to 1994, filed federal income tax returns on a calendar
year basis. Since 1994, BankUnited and its subsidiaries have elected to file
consolidated tax returns on the basis of a fiscal year ending September 30. The
Tax Reform Act of 1986 (the "1986 Act"), which was signed into law on October
22, 1986, revised the income tax laws applicable to corporations in general and
to savings institutions, such as the Bank, in particular. Except as specifically
noted, the discussion below relates to taxable years beginning after December
31, 1986.
BankUnited has not been notified of a proposed examination of its federal
income tax returns by the Internal Revenue Service (the "IRS").
30
<PAGE>
Bad Debt Reserves Deductions. Prior to legislation enacted in August 1996,
the Internal Revenue Code (the "Code") permitted savings institutions, such as
the Bank, to establish a reserve for bad debts and to make annual additions
thereto, which additions might, within specified formula limits, be deducted in
determining taxable income. The bad debt reserve deduction was generally based
upon a savings institution's actual loss experience (the "experience method").
In addition, provided that certain definitional tests relating to the
composition of assets and sources of income were met, a savings institution was
permitted to elect annually to compute the allowable addition to its bad debt
reserve for losses on qualifying real property loans (generally loans secured by
improved real estate) by reference to a percentage of its taxable income (the
"percentage of taxable income method").
Under the percentage of taxable income method, a savings institution was
permitted, in general, to claim a deduction for additions to bad debt reserves
equal to 8% of the savings institution's taxable income. Taxable income for this
purpose was defined as taxable income before the bad debt deduction, but without
regard to any deduction allowable for any addition to the reserve for bad debt.
Certain adjustments were also required for gains on the sale of corporate stock
and tax exempt obligations. For this purpose, the taxable income of a savings
institution for a taxable year was calculated after utilization of net operating
loss carry forwards.
In August of 1996, legislation was enacted that repealed the reserve method
of accounting (including the percentage of taxable income method) used by many
thrifts, including the Bank, to calculate their bad debt deduction for federal
income tax purposes. The legislation required thrifts to account for bad debts
for federal income tax purposes on the same basis as commercial banks for tax
years beginning after December 31, 1995. As such, thrifts with assets whose tax
basis exceeds $500,000,000 were required to adopt the specific charge off method
in computing its bad debt deduction. As such, the Bank has used the specific
charge off method in computing its bad debt deduction for tax years beginning
after December 31, 1995.
As a result of this change in accounting method, the Bank must recapture
the excess of its September 30, 1996 bad debt reserve over the reserve in
existence on December 31, 1987. This recapture will occur over a six-year
period, commencing with the first taxable year beginning after December 31,
1997, provided the institution meets certain residential lending requirements.
The management of BankUnited does not believe that the legislation will have a
material impact on BankUnited or the Bank.
Distributions. Under the Code, the Bank's December 31, 1987 reserve must be
recaptured into taxable income as a result of certain non-dividend
distributions. A distribution is a non-dividend distribution to the extent that,
for federal income tax purposes, (i) it is in redemption of shares, (ii) it is
pursuant to a liquidation of the institution, or (iii) in the case of a current
distribution it, together with all other such distributions during the taxable
year, exceeds the Bank's current and post-1951 accumulated earnings and profits.
The amount charged against the Bank's bad debt reserves in respect of a
distribution will be includable in its gross income and will equal the amount of
such distribution, increased by the amount of federal income tax resulting from
such inclusion.
31
<PAGE>
Alternative Minimum Tax
In addition to the income tax, corporations are generally subject to an
alternative minimum tax at a rate of 20%. The alternative minimum tax is imposed
on the sum of regular taxable income (with certain adjustments) and tax
preference items, less any available exemption ("AMTI"). The alternative minimum
tax is imposed to the extent that it exceeds a corporation's regular income tax
liability. The items of tax preference that constitute AMTI for 1990 and
thereafter include 75% of the difference between the taxpayer's adjusted current
earnings and AMTI (determined without regard to this preference and prior to any
deduction for net operating loss carry forwards or carry backs). In addition,
net operating loss carry forwards cannot offset more than 90% of AMTI.
Interest Allocable to Tax-exempt Obligations
The 1986 Act eliminates for financial institutions the deduction for
interest expense allocable to the purchase or carrying of most tax-exempt
obligations for taxable years ending after December 31, 1986, with respect to
tax-exempt obligations acquired after August 7, 1986 excluding certain financial
institution-qualified issues. For all qualified issues and for non-qualified
tax-exempt obligations acquired after 1982 and before August 7, 1986, 20% of
allocable interest expense deductions will be disallowed.
State Taxation
The State of Florida imposes a corporate income tax on BankUnited, at a
rate of 5.5% of BankUnited's taxable income as determined for Florida income tax
purposes. Taxable income for this purpose is based on federal taxable income
with certain adjustments.
Foreclosures
Tax legislation enacted in August of 1996 significantly changed the tax
treatment with respect to foreclosures for taxable years beginning after
December 31, 1995. Prior to this legislation, a thrift's acquisition of property
by means of foreclosure was not treated as a taxable event for federal tax
purposes. No gain or loss was recognized at the time of foreclosure and no
portion of the debt could be treated as worthless. In addition, prior to the
August 1996 legislation, thrift institutions were allowed a tax benefit for
write downs of foreclosed property to fair market value. Finally, for thrifts
that computed its bad debt deduction under the experience method, gains or
losses realized from the sale of foreclosed property were not taken into account
in computing taxable income, but were credited or charged to the thrift's bad
debt reserve.
As a result of enacted tax legislation, thrift foreclosures are treated as
a taxable event for federal tax purposes for property acquired after December
31, 1995. As such, a thrift may recognize gain, loss or a bad debt deduction at
the time of foreclosure depending on the method by which the property was
acquired. In addition, write downs of foreclosed property to fair market value
no longer give rise to a tax benefit. Finally, gains and losses realized upon
the sale of foreclosed property are included in taxable income of the thrift.
32
<PAGE>
Item 2. Properties
Currently BankUnited operates 32 full-service banking offices located in
South Florida and one in West Florida, of which 30 are leased and three are
owned. BankUnited's banking offices have square footage ranging from 2,000
square feet to 8,000 square feet with lease terms ranging from the year 2001 to
the year 2010.
BankUnited's executive and administrative offices are located at 255
Alhambra Circle, Coral Gables, Florida 33134 where, as of September 30, 2000,
BankUnited leased approximately 18,000 square feet of space pursuant to a lease
agreement that begins to terminate with respect to portions of the premises in
2004. BankUnited also leases approximately 40,000 square feet of space for its
operation center, which is located at 7815 NW 148 Street, Miami Lakes, Florida
33016, pursuant to a lease agreement that begins to terminate with respect to
portions of the premises in 2002. BankUnited has multiple options to renew
leases at all banking offices and other locations.
At September 30, 2000, BankUnited leased the facilities of a branch
obtained through the acquisition of Suncoast which was closed in fiscal year
1997. This lease expires in fiscal year 2002. BankUnited owns an office
condominium which is currently not leased.
For further information regarding BankUnited's lease obligations, see Notes
to Consolidated Financial Statements.
Item 3. Legal Proceedings
BankUnited and its subsidiaries, from time to time, are involved as
plaintiff or defendant in various legal actions arising in the normal course of
their businesses. While the ultimate outcome of any such proceedings cannot be
predicted with certainty, it is the opinion of management that no proceedings
exist, either individually or in the aggregate, which, if determined adversely
to BankUnited and its subsidiaries, would have a material effect on BankUnited's
consolidated financial condition, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of BankUnited's security holders during
the fourth quarter of the fiscal year ended September 30, 2000.
33
<PAGE>
Item 4a. Executive Officers of the Registrant
The following table sets forth information concerning the executive
officers and directors of BankUnited and the Bank.
Positions with Company
Name Age and Business Experience
---- --- -----------------------
Alfred R. Camner 56 Director, Chairman of the Board and Chief
Executive Officer (1993 to present) and
President (1993 to 1998) of BankUnited;
Director, Chairman of the Board and Chief
Executive Officer (1984 to present) and
President (1984 to 1993, 1994 to 1998) of
the Bank; Senior Managing Director (1996
to present) of Camner, Lipsitz and Poller,
Professional Association,
attorneys-at-law, and its predecessor,
Stuzin and Camner, Professional
Association, attorneys-at-law; Managing
Director (1973 to 1996) of Stuzin and
Camner, Professional Association,
attorneys-at-law; General Counsel to CSF
Holdings, Inc. and its subsidiary,
Citizens Federal Bank, a federal savings
bank (1973 to 1996); Director and member
of the Executive Committee of the Board of
Directors of Loan America Financial
Corporation, a national mortgage banking
company (1985 to 1994); Director of CSW
Associates, Inc., an asset management firm
(1990 to 1995).
Mehdi Ghomeshi 44 Director, President and Chief Operating
Officer of BankUnited and the Bank
(December 1998 to present); Market
President of NationsBank, South Florida
(January 1998 to December 1998); President
and Chief Operating Officer of Barnett
Bank, South Florida (1996 to 1998);
Director of Special Assets and Risk
Management, Barnett Banks, Inc. (1995 to
1996); Executive Vice President,
Commercial Real Estate, Barnett Bank of
South Florida (1993 to 1995).
Lawrence H. Blum 57 Director and Vice Chairman of the Board of
BankUnited (1993 to present) and the Bank
(1984 to present); Managing Director (1992
to present) and partner (1974 to present)
of Rachlin, Cohen & Holtz, certified
public accountants.
Marc D. Jacobson 58 Director (1993 to present) and Secretary
(1993 to 1997) of BankUnited; Director
(1984 to present) and Secretary (1985 to
1996) of the Bank; Vice President of
Head-Beckham Ameri Insurance Agency, Inc.,
and its predecessor, Head-Beckham
Insurance Agency, Inc. (1990 to present).
34
<PAGE>
Positions with Company
Name Age and Business Experience
---- --- -----------------------
Allen M. Bernkrant 70 Director of BankUnited (1993 to present)
and the Bank (1985 to present); Private
investor in Miami, Florida (1990 to
present).
Marc Lipsitz 59 Director (1996 to present) and Secretary
(1997 to present) of BankUnited; Managing
Director (1996 to present) of Camner,
Lipsitz and Poller, Professional
Association, attorneys-at-law and its
predecessor, Stuzin and Camner,
Professional Association,
attorneys-at-law; General Counsel of
Jefferson National Bank (1993 to 1996);
Partner, Stroock, Stroock & Lavan,
attorneys-at-law (1991 to 1993).
Neil H. Messinger, M.D. 62 Director of BankUnited and the Bank (1996
to present); Radiologist; President (1986
to present), Radiological Associates,
Professional Association; Chairman (1986
to present) of Imaging Services of Baptist
Hospital.
Anne W. Solloway 85 Director of BankUnited (1993 to present)
and the Bank (1985 to present); Private
investor in Miami, Florida.
Executive Officers of BankUnited And/or the Bank
Who Are Not Directors:
Lisa Barrera 37 Executive Vice President Production
Manager (November 2000 - Present),
Executive Vice President Mortgage
Operations (March 2000 - November 2000),
Senior Vice President Mortgage Operations
(February 1999 - March 2000), of the Bank.
Vice President/Regional Sales and Service
Center Manager (1994 - 1999) of
NationsBank Mortgage Corporation, formerly
Barnett Mortgage Corporation. Senior Vice
President/Corporate Operations Manager
(1989 - 1994) of Loan America Financial
Corporation.
Iliana Castillo-Frick 45 Executive Vice President, Human Resources
Director (April 2000 - present) of the
Bank. Vice President/Staffing Manager
(February 1998 - March 2000); Vice
President /Human Resources Manager
(October 1995 - January 1998); Assistant
Vice President/Senior Human Resources
Generalist (April 1994 - September 1995),
of Bank of America formerly Barnett Banks,
Inc.
Michael J. Clutter 53 Executive Vice President, Credit Policy,
of the Bank (March 1999 to present);
Senior Vice President-Credit
Administration (1984 to 1999) of Barnett
Bank, Broward County and its successor by
merger, NationsBank, Inc.
35
<PAGE>
Positions with Company
Name Age and Business Experience
---- --- -----------------------
Executive Officers of BankUnited And/or the Bank
Who Are Not Directors: (Continued)
Janette L. Davis 45 Executive Vice President, Retail Banking,
of the Bank (February 1999 to present);
Senior Vice President/Region Executive
(1998 to 1999), Group Senior Vice
President, Market Executive (1996 to 1998)
and Vice President, Office Manager (1992
to 1996) of Barnett Bank, South Florida
and its successor by merger, NationsBank,
Inc.
Humberto Lopez 41 Executive Vice President, Finance, of the
Bank (January 1999 to present) and Chief
Financial Officer of BankUnited and the
Bank (December 1999 to present); Director
(1998 to 1999), PricewaterhouseCoopers
LLP; Chief Financial Officer (1997 to
1998) of Barnett Bank, South Florida and
its successor by merger, NationsBank,
Inc., Regional Finance Manager (1996 to
1997) and Regional Controller (1993 to
1996) of Barnett Banks, Inc. and its
successor by merger, NationsBank, Inc.
Vincent F. Post, Jr. 47 Executive Vice President, Commercial Real
Estate Banking, of the Bank (1998 to
present); Executive Vice President (1996
to 1998) and Group Senior Vice President
(1994 to 1996) of Barnett Bank, South
Florida and its successor by merger,
NationsBank, Inc.
All executive officers serve at the discretion of the Board of Directors
and are elected annually by the Board.
36
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholders
Matters
Stock Information
BankUnited's Class A Common Stock, $.01 par value ("Class A Common Stock"),
is traded in the over-the-counter market and quoted in the Nasdaq-Amex Stock
Market ("Nasdaq"). BankUnited's Class B Common Stock, $.01 par value ("Class B
Common Stock"), is not currently traded on any established public market.
At December 13, 2000, there were 517 and 14 holders of record of
BankUnited's Class A Common Stock and Class B Common Stock, respectively. The
number of holders of record of the Class A Common Stock includes nominees of
various depository trust companies for an undeterminable number of individual
stockholders. Class B Common Stock is convertible into Class A Common Stock at a
ratio (subject to adjustment on the occurrence of certain events) of one share
of Class A Common Stock for each share of Class B Common Stock surrendered for
conversion.
There were no common stock dividends declared or paid in fiscal 2000 or
1999. See Notes to Consolidated Financial Statements for a discussion of
restrictions on the Bank's payment of dividends to BankUnited.
The following tables set forth, for the periods indicated, the range of
high and low bid prices for the Class A Common Stock quoted on Nasdaq. Stock
price data in the Nasdaq reflects inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
Class A Common Stock
--------------------
Price
------------------
High Low
-------- -------
Fiscal Year Ended September 30, 2000:
1st Quarter ............................... $ 9.07 $ 6.88
2nd Quarter ............................... $ 8.00 $ 6.78
3rd Quarter ............................... $ 7.38 $ 5.94
4th Quarter ............................... $ 7.81 $ 6.13
Fiscal Year Ended September 30, 1999:
1st Quarter ............................... $ 10.06 $ 6.56
2nd Quarter ............................... $ 9.94 $ 6.13
3rd Quarter ............................... $ 11.00 $ 6.94
4th Quarter ............................... $ 10.13 $ 7.88
37
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
As of or for the Fiscal Year Ended September 30,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operations Data:
Interest income .................................. $ 295,315 $ 233,550 $ 207,567 $ 108,774 $ 52,132
Interest expense ................................. 219,146 187,515 167,543 75,960 34,622
----------- ----------- ----------- ----------- -----------
Net interest income .............................. 76,169 46,035 40,024 32,814 17,510
Provision (credit) for loan losses ............... 4,645 7,939 1,700 1,295 (120)
----------- ----------- ----------- ----------- -----------
Net interest income after provision (credit)
for loan losses ............................... 71,524 38,096 38,324 31,519 17,630
----------- ----------- ----------- ----------- -----------
Non-interest income:
Service fees, net ................................ 4,295 3,785 1,139 2,993 597
Net gain (loss) on sales of loans and mortgage-
backed securities ............................. 71 (5) 4,429 819 5
Net gain (loss) on sale of other assets .......... -- 1 6 1 (6)
Other ............................................ 1,709 1,019 651 247 53
----------- ----------- ----------- ----------- -----------
Total non-interest income ........................ 6,075 4,800 6,225 4,060 649
----------- ----------- ----------- ----------- -----------
Non-interest expenses:
Employee compensation and benefits ............... 19,819 15,970 10,943 8,880 4,275
Occupancy and equipment .......................... 8,332 8,029 4,854 3,568 1,801
Insurance (1) .................................... 1,221 1,683 1,185 948 3,610
Professional fees ................................ 3,193 3,084 1,891 1,605 929
Other ............................................ 19,959 19,627 13,310 7,946 3,421
----------- ----------- ----------- ----------- -----------
Total non-interest expense ....................... 52,524 48,393 32,183 22,947 14,036
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes, extraordinary
item and preferred stock dividends ............ 25,075 (5,497) 12,366 12,632 4,243
Provision (benefit) for income taxes ............. 10,247 (1,903) 5,009 5,033 1,657
----------- ----------- ----------- ----------- -----------
Net income (loss) before extraordinary item
and preferred stock dividends .................. 14,828 (3,594) 7,357 7,599 2,586
Extraordinary item (net of tax) .................. 936 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) before preferred stock
dividends ....................................... 15,764 (3,594) 7,357 7,599 2,586
Preferred stock dividends ........................ 790 773 897 2,890 2,145
----------- ----------- ----------- ----------- -----------
Net income (loss) after preferred stock
dividends ....................................... $ 14,974 $ (4,367) $ 6,460 $ 4,709 $ 441
=========== =========== =========== =========== ===========
Financial Condition Data:
Total assets ..................................... $ 4,552,069 $ 4,078,471 $ 3,738,383 $ 2,145,406 $ 824,360
Loans receivable, net, and
mortgage-backed securities (2) ................... 3,700,492 3,246,455 3,215,360 1,781,652 716,550
Investments, overnight deposits, tax certificates,
reverse repurchase agreements, certificates of
deposit and other earning assets ................. 401,481 295,213 194,791 186,955 87,662
Total liabilities ................................ 4,349,482 3,888,334 3,539,091 2,045,761 755,249
Deposits ......................................... 2,609,538 2,279,798 2,124,824 1,195,892 506,106
Long-term debt ................................... 1,086,426 966,447 766,466 191,484 45,000
Company obligated mandatorily redeemable
trust preferred securities of subsidiary trust
holding solely junior subordinated deferrable
interest debentures of BankUnited ............. 212,393 218,500 218,500 116,000 --
Borrowings ....................................... 1,673,024 1,546,648 1,361,114 817,484 237,775
Total stockholders' equity ....................... 202,587 190,137 199,292 99,645 69,111
Common stockholders' equity ...................... 193,241 180,984 190,627 75,649 44,807
(continued on the next page)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
As of or for the Fiscal Year Ended September 30,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------- ------------ ----------- -----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Per Common Share Data:
Basic earnings (loss) per common share .......... $ 0.82 $ (0.24) $ 0.41 $ 0.57 $ 0.10
------------ ------------- ------------ ----------- -----------
Diluted earnings (loss) per common share ........ $ 0.81 $ (0.24) $ 0.39 $ 0.54 $ 0.10
------------ ------------- ------------ ----------- -----------
Weighted average number of common shares
and common equivalent shares assumed
outstanding during the period:
Basic ........................................ 18,220,508 18,312,548 15,692,566 8,210,890 4,306,042
Diluted ...................................... 18,779,837 18,312,548 16,666,415 9,148,229 4,558,521
Book value per common share ..................... $ 10.61 $ 9.88 $ 10.50 $ 7.94 $ 7.85
Fully converted tangible book value per
common share ................................. $ 8.78 $ 8.05 $ 8.66 $ 6.88 $ 7.13
Select Financial Ratios:
Performance Ratios:
Return (loss) on average assets (3) ............. 0.38% (0.10)% 0.24% 0.51% 0.36%
Return (loss) on average common equity .......... 9.08 (3.79) 4.94 9.34 4.30
Return (loss) on average total equity ........... 8.09 (1.85) 4.53 8.06 1.30
Interest rate spread ............................ 1.74 1.12 1.11 2.07 2.10
Net interest margin ............................. 1.91 1.27 1.32 2.31 2.51
Dividend payout ratio (4) ....................... 5.01 NM 12.19 38.03 82.95
Ratio of earnings to combined fixed charges
and preferred stock dividends (5):
Excluding interest on deposits .................. 1.25 0.92 1.14 1.26 1.05
Including interest on deposits .................. 1.11 0.96 1.06 1.10 1.02
Total loans, net, and mortgage-backed
securities to total deposits ................. 141.81 142.40 151.32 148.98 141.58
Non-interest expense to average assets .......... 1.27 1.28 1.03 1.55 1.97
Efficiency ratio(6) ............................. 61.07 94.70 64.86 57.56 76.45
Asset Quality Ratios:
Ratio of non-performing loans to total loans .... 0.58% 0.70% 0.64% 0.72% 0.99%
Ratio of non-performing assets to total loans,
real estate owned and tax certificates ....... 0.68 0.85 0.73 0.79 1.14
Ratio of non-performing assets to total assets .. 0.55 0.69 0.61 0.67 0.95
Ratio of net charge-offs to average total loans . 0.11 0.06 0.02 0.04 (0.12)
Ratio of loan loss allowance to total loans ..... 0.35 0.36 0.20 0.21 0.34
Ratio of loan loss allowance to non-performing
loans ........................................ 61.20 52.45 31.51 28.96 33.74
Capital Ratio:
Ratio of average common equity to average
total assets ................................. 4.49% 4.08% 4.18% 3.40% 4.78%
Ratio of average total equity to average
total assets ................................. 4.72 5.16 5.19 6.36 8.44
Core capital-to-assets ratio(7) ................. 7.49 7.86 8.72 8.07 7.01
Risk-based capital-to-assets ratio(7) ........... 14.84 15.54 17.54 11.27 14.19
</TABLE>
-------------------
(1) In 1996 BankUnited recorded a one-time SAIF special assessment of $2.6
million ($1.6 million after tax).
(2) Does not include mortgage loans held for sale.
(3) Return on average assets is calculated before payment of Preferred Stock
dividends.
(4) The ratio of total dividends declared during the period (including
dividends on the Bank's and BankUnited's Preferred Stock and BankUnited's
Class A and Class B Common Stock) to total earnings for the period before
dividends.
(5) The ratio of earnings to combined fixed charges and Preferred Stock
dividends excluding interest on deposits is calculated by dividing income
before taxes and extraordinary items by interest on borrowings plus 33% of
rental expense plus Preferred Stock dividends on a pretax basis. The ratio
of earnings to combined fixed charges and Preferred Stock dividends
including interest on deposits is calculated by dividing income before
taxes and extraordinary items by interest on deposits plus interest on
borrowings plus 33% of rental expenses plus Preferred Stock dividends on a
pretax basis.
(6) Efficiency ratio is calculated by dividing non-interest expenses less
non-interest income by net interest income.
(7) Regulatory capital ratio of the bank.
NM = Not meaningful
39
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion and analysis and the related financial data
present a review of the consolidated operating results and financial condition
of BankUnited for the fiscal years ended September 30, 2000, 1999 and 1998. This
discussion and analysis is presented to assist the reader in understanding and
evaluating the financial condition, results of operations and future prospects
of BankUnited, and is intended to supplement, and should be read in conjunction
with, the Consolidated Financial Statements and Notes thereto.
BankUnited is a Florida-incorporated savings and loan holding company for
the Bank. The Bank was founded in 1984 as a savings and loan association. In
1993, the Bank was converted to a federally chartered savings bank and became a
wholly-owned subsidiary of BankUnited, pursuant to a plan of re-organization
approved by its shareholders. BankUnited's principal business currently consists
of the operation of its wholly-owned subsidiary, the Bank. In addition to
managing the business activities of the Bank, BankUnited invests primarily in
U.S. Government and federal agency securities, mortgage-backed securities and
other permitted investments. The Bank's primary business has traditionally been
to attract retail deposits from the general public and to invest those deposits,
together with borrowings, principal repayments and other funds, primarily in
one-to-four family residential mortgage loans, and to a lesser extent,
mortgage-backed securities, commercial real estate mortgage loans, multi-family
mortgage loans, commercial business loans and consumer loans. The Bank has also
invested in other permitted investments. The Bank is subject to the regulations
of certain federal agencies and undergoes periodic examinations by those
regulatory authorities. References to BankUnited include the activities of all
of its subsidiaries, including the Bank and its subsidiaries, if the context so
requires.
BankUnited's results of operations are dependent primarily on its net
interest income, which is the difference between the interest earned on its
assets, primarily its loan and securities portfolios, and its cost of funds,
which consists of the interest paid on its deposits and borrowings. BankUnited's
results of operations are also affected by its provision for loan losses as well
as non-interest income, non-interest expenses and income tax expense.
Non-interest expenses consist of employee compensation and benefits, occupancy
and equipment, insurance, professional fees, telecommunications and data
processing, loan servicing expense, and other operating expenses. Results of
operations are also dependent on the dollar volume and asset quality of
BankUnited's loans and investments.
In addition to the foregoing, results of BankUnited's operations, like
those of other financial institution holding companies, are affected by
BankUnited's asset and liability management policies, as well as factors beyond
BankUnited's control, such as general economic conditions and the monetary and
fiscal policies of the federal government. Lending activities are affected by
the demand for mortgage financing and other types of loans, which is in turn
affected by the interest rates at which such financings may be offered and other
factors affecting the supply of housing and the availability of funds. Deposit
flows and costs of funds are influenced by yields available on competing
investments and by general market rates of interest.
40
<PAGE>
Fiscal 2000 Highlights
During fiscal 2000 BankUnited increased its asset size to $4.6 billion and
reported record net income of $15 million, resulting in basic earnings of $0.82
and diluted of $0.81 per share. These results reflect the significant
improvement in BankUnited's net interest margin which rose to 1.91% for the
period ended September 30, 2000 from 1.27% for the period ended September 30,
1999.
During Fiscal 2000, BankUnited opened four new branches. A fifth branch was
opened shortly after year end, bringing the total branches to thirty-three.
BankUnited launched its web site, www.buexpress.com to widen its reach into the
community at reduced cost and offer the alternative delivery channel of Internet
banking services to its customers. BankUnited also launched an aggressive
branding campaign which consisted of radio, print and an award-winning
thirty-second television commercial.
Restructuring
General
In December 1998, BankUnited hired a new President and Chief Operating
Officer and subsequently hired a new executive management team, completed a
restructuring and changed its strategy to become an asset-generating entity and
a full service banking institution. The restructuring resulted in $24.5 million
of pre-tax charges which led to a net loss for fiscal 1999. See "Second Quarter
1999 Charges." In the last two quarters of fiscal 1999 and through fiscal 2000,
BankUnited significantly increased loan production, developed enhanced deposit
products and recorded strong earnings. Fiscal 2000 has shown positive results
from the restructuring as assets have increased $473.6 million or 11.6%. Loans
in sectors not previously emphasized by BankUnited have increased over $105
million including commercial real estate which increased $14.5 million,
construction loans which increased $23.3 million and commercial and consumer
which increased $67.5 million. BankUnited posted net income of $15.8 million
before preferred stock dividends.
Second Quarter 1999 Charges
BankUnited's restructuring resulted in a special charge of $15.1 million,
as well as a provision for loan losses of $6.3 million, a provision for tax
certificate investment losses of $1.1 million and certain other miscellaneous
charges of $2.0 million resulting in a pre-tax total of $24.5 million of charges
against income.
Included in the $15.1 million charge was a $14.8 million charge consisting
of $13.0 million of purchase premiums that was required to write down the
carrying value of its purchased One-Year CMT loan portfolio to the lower of cost
or market, and a $1.8 million charge for accelerated amortization of purchase
premiums on a related security. BankUnited's earnings had been severely hampered
during several quarters prior to the restructuring due to the high levels of
prepayments associated with One-Year CMT loans acquired in the secondary market.
As a part of the restructuring, BankUnited decided to reduce its dependence on
the purchase of residential
41
<PAGE>
mortgages in the secondary market, including ending its purchases of One-Year
CMT loans. In addition, all remaining One-Year CMT loans were transferred to
held for sale as of March 31, 1999.
The restructuring also included a rigorous review of BankUnited's loan
portfolio. This examination resulted in a provision for loan losses of $6.3
million. See "Asset Quality." BankUnited made the decision to discontinue
indirect consumer lending and investing in tax certificates because it was clear
from management's review that BankUnited could not anticipate future benefits
from continuing these lines of business. BankUnited made a $1.1 million
provision for losses on its tax certificate portfolio in connection with its
decision to discontinue this line of business and a review of the quality of the
assets. The miscellaneous charges of $2.0 million included $1.0 million in costs
associated with becoming Year 2000 compliant.
Acquisitions
On June 19, 1998, BankUnited acquired Central Bank ("Central"), for
1,386,000 shares of BankUnited's Class A Common Stock, and merged Central, which
had assets of $93.9 million and deposits of $65.9 million as of June 19, 1998,
into the Bank.
On January 23, 1998, BankUnited acquired Consumers Bancorp, Inc.
("Consumers"), for approximately $12.0 million in a combination of cash and
stock, and merged its wholly-owned subsidiary, Consumers Savings Bank, which had
assets of $104.4 million and deposits of $88.3 million as of January 23, 1998,
into the Bank.
See Notes to Consolidated Financial Statements for additional information
regarding these acquisitions.
Liquidity and Capital Resources
BankUnited's primary source of funds is cash provided by investing
activities and includes principal and interest payments on loans,
mortgage-backed securities and other securities. For fiscal years ended
September 30, 2000 and 1999, principal repayments on loans and mortgage-backed
securities and proceeds from maturities of other securities totaled $657.9
million and $1.4 billion, respectively. During fiscal 1998 BankUnited began
experiencing significant acceleration of prepayments on certain mortgage loans
and mortgage backed securities due to the decrease in long-term interest rates
that continued through the second quarter of fiscal 1999 . During the quarter
ended June 30, 1999, long-term interest rates rose slightly causing the volume
of mortgage loan refinancing to decrease, slowing the prepayment rate of
BankUnited's loan portfolio.
BankUnited's other sources of funds are provided by financing activities
and includes borrowings and deposits. Net cash provided by financing activities
during the fiscal year ended September 30, 2000 increased to $462 million from
$344.9 million, for the fiscal year ended September 30, 1999. This increase was
mainly attributable to increases in deposits of $330 million, and increased FHLB
advances of $155 million. These increases were offset by a $22 million decrease
in other borrowings. The increase in deposits is attributable to the expansion
of BankUnited's branch network which increased by four new branch locations
during fiscal 2000.
42
<PAGE>
BankUnited's primary uses of funds in its operating and investing
activities has been the origination of loans and the purchase of mortgage-backed
securities and other securities. During the fiscal year ended September 30,
2000, BankUnited's originations of loans totaled $924.2 million, purchases of
loans totaled $5.5 million and purchases of mortgage-backed securities and other
securities totaled $110.1 million. For the same period in 1999, BankUnited's
originations of loans totaled $723.1 million, purchases of loans totaled $803.3
million and purchases of mortgage-backed securities and other securities totaled
$239.4 million. As previously noted, during the fiscal year ended September 30,
1999 BankUnited decided to reduce its purchases of residential loans in the
secondary market and turned its emphasis to originating its own loans.
In the normal course of business, BankUnited routinely enters into various
commitments, primarily relating to the origination and purchase of loans, the
purchase of securities and standby letters of credit. Total commitments
outstanding at September 30, 2000 to originate loans were $84.3 million. In
addition, BankUnited had $15.5 million in standby letters of credit outstanding
at September 30, 2000 compared to commitments of $56.9 million and standby
letters of credit outstanding of $6.3 million at September 30, 1999. BankUnited
anticipates that it will have sufficient funds available to meet its current
commitments in the normal course of business.
BankUnited's total stockholders' equity was $202.6 million at September 30,
2000, an increase of $12.5 million, or 6.6%, from $190.1 million at September
30, 1999. The increase is due primarily to current year income after preferred
stock dividends of $15 million offset by an increase in accumulated other
comprehensive loss and purchases of treasury stock.
In December 1998, the Board of Directors of BankUnited authorized the
purchase from time to time in open market transactions of up to 1,000,000 shares
of BankUnited's Class A Common Stock at such prices as the Executive Committee
deems advantageous. At September 30, 1999, BankUnited had purchased 183,000
shares of its Class A Common Stock. During fiscal 2000, BankUnited purchased an
additional 150,000 shares of its Class A Common Stock on the open market at a
cost of $1.1 million, for a total treasury position of 333,000 shares at a cost
of $2.8 million.
In May 1999, BankUnited's Board of Directors authorized the purchase of
shares of its 9% Noncumulative Perpetual Preferred Stock (the "9% Preferred
Stock") on the open market as deemed appropriate and, if the market is
appropriate, the retirement of the 9% Preferred Stock. During fiscal 2000,
BankUnited purchased a total of 1,000 shares of its 9% Preferred Stock on the
open market at a cost of $7,250
The Bank is required under applicable federal regulations to maintain
specified levels of liquid investments in cash, United States government
securities and other qualifying investments. Regulations currently in effect
require the Bank to maintain liquid assets of not less than 4.0% of its net
demand accounts plus short-term borrowings. In compliance with this requirement
the Bank has liquid assets of 8.77% as of September 30, 2000 and 6.96% as of
September 30, 1999.
Federal savings banks such as the Bank are also required to maintain
capital at levels specified by applicable minimum capital ratios. At September
30, 2000, the Bank was in
43
<PAGE>
compliance with all capital requirements and met the definition of a "well
capitalized" institution under applicable federal regulations.
Asset Quality
At September 30, 2000, non-performing assets totaled $25.3 million as
compared to $28.3 million and $22.6 million at September 30, 1999 and 1998,
respectively. Expressed as a percentage of total assets, non-performing assets
decreased to 0.55% as of September 30, 2000 as compared to 0.69% as of September
30, 1999 and 0.61% as of September 30, 1998. The decrease in non-performing
assets in fiscal 2000 primarily resulted from decreases in non-accrual loans and
real estate owned of $1.7 million and $1.3 million, respectively. Non-accrual
loans decreased primarily due to a $0.9 million decrease in one-to-four family
residential loan delinquencies and a $3.0 million decrease in commercial
mortgage loan delinquencies. The decrease in real estate owned was due to a
decrease in one-to-four family real estate owned.
44
<PAGE>
The following table sets forth information concerning BankUnited's
non-performing assets for the periods indicated:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans (1) ................................. $19,751 $21,428 $15,999 $10,866 $ 4,939
Restructured loans (2) ................................ 1,283 962 1,137 1,888 1,457
Loans past due 90 days and still accruing ............. 261 693 2,313 -- --
------- ------- ------- ------- -------
Total non-performing loans (3) ........................ 21,295 23,083 19,449 12,754 6,396
on-accrual tax certificates ........................... 1,671 1,703 1,225 958 800
Real estate owned ..................................... 2,286 3,548 1,974 611 632
------- ------- ------- ------- -------
Total non-performing assets ........................... $25,252 $28,334 $22,648 $14,323 $ 7,828
======= ======= ======= ======= =======
Allowance for losses on tax certificates .............. $ 986 $ 1,168 $ 469 $ 697 $ 614
Allowance for loan losses ............................. 13,032 12,107 6,128 3,693 2,158
------- ------- ------- ------- -------
Total allowance ....................................... $14,018 $13,275 $ 6,597 $ 4,390 $ 2,772
======= ======= ======= ======= =======
Non-performing assets as a percentage of
total assets ...................................... 0.55% 0.69% 0.61% 0.67% 0.95%
Non-performing loans as a percentage of
total loans (4) ................................... 0.58% 0.70% 0.64% 0.72% 0.99%
Allowance for loan losses as a percentage of
total loans (4) ................................... 0.35% 0.36% 0.20% 0.21% 0.34%
Allowance for loan losses as a percentage of
non-performing loans .............................. 61.20% 52.45% 31.51% 28.96% 33.74%
Net charge-offs as a percentage of average
total loans ........................................ 0.11% 0.06% 0.02% 0.04% (0.12)%
</TABLE>
----------------
(1) Gross interest income that would have been recorded on non-accrual loans
had they been current in accordance with original terms was $1.1 million,
$1.3 million, $1.0 million, $0.6 million, and $0.2 million for the years
ended September 30, 2000, 1999, 1998, 1997 and 1996, respectively. The
amount of interest income on such non-accrual loans included in net income
for the years ended September 30, 2000, 1999, 1998, 1997 and 1996 was $0.7
million, $0.5 million, $0.4 million, $0.4 million, and $0.1 million,
respectively.
(2) All restructured loans were accruing.
(3) In addition, management had concerns as to the borrower's ability to comply
with present repayment terms on $2.1 million and $6.5 million of accruing
loans as of September 30, 2000 and 1999, respectively. Management estimates
that on these loans the loss, if any, will not be significant.
(4) Based on balances prior to deductions for allowance for loan losses.
BankUnited's allowance for loan losses is established and maintained based
upon management's evaluation of the risks inherent in the loan portfolio. During
the second quarter of fiscal year 1999, management conducted a review of
BankUnited's interest-earning assets. In connection with this review management
conducted a rigorous review of the loan portfolio, which included a systematic
and detailed evaluation of the estimated loss exposure in BankUnited's loan
portfolio. Management utilized historical loan losses, current trends in
delinquencies and charge-offs, plans for problem loan administration and
resolution, the views of its regulators, and other relevant factors, such as
assumptions and projections of future conditions in order to determine the
adequacy of the allowance for loan losses. As a result of
45
<PAGE>
this review some, of the loss presumptions in determining the adequacy of the
allowance for loan losses were revised. The revisions included:
o Evaluating non-performing one-to-four family residential loans as a group
of loans rather than individually. Previously, reserves were established
only on those loans where the unpaid principal balance was greater than 90%
of the net realizable value. However, since one-to-four family residential
loans are homogenous in nature and no single loan is individually
significant in terms of its size or potential risk of loss, reserves are
now being determined for the group as a whole, based on loss rates
experienced in the state in which the property is located. This change
resulted in an additional $2.1 million provision for loan losses in the
second quarter of fiscal 1999.
o Evaluating indirect consumer loans as a separate group of loans from direct
consumer loans. Industry and internal trends have shown that indirect
consumer loans have a higher loss experience than direct consumer loans. As
part of the review of interest-earning assets, management made the decision
to discontinue indirect consumer lending. In connection with this decision,
and in response to loss trends, management increased its reserves on the
indirect consumer lending portfolio. This change resulted in an additional
$0.3 million provision for loan losses in the second quarter of fiscal
1999.
o Performing a detailed re-evaluation of the non-performing commercial
mortgage and non-mortgage commercial loans. The re-evaluation included
obtaining updated market value information, site visits and a review of the
loan documentation. The re-evaluation resulted in an additional $3.9
million provision for loan losses in the second quarter of fiscal 1999.
In total, the review of interest-earning assets resulted in an additional
provision of $6.3 million in 1999.
The total provision for fiscal years ended September 30, 2000 and 1999 was
$4.6 million and $7.9 million, respectively.
The identification of impaired loans is conducted in conjunction with the
review of the adequacy of the allowance for loan losses. Loss allowances are
established for specifically identified impaired loans based on the fair value
of the underlying collateral in accordance with SFAS No. 114.
46
<PAGE>
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Adjustments to impairment losses
resulting from changes in the fair value of an impaired loan's collateral are
included in the provision for loan losses. Upon disposition of an impaired loan,
any related valuation allowance is removed from the allowance for loan losses.
The allowance for loan losses is adjusted by additions charged to operations as
a provision for loan losses and by loan recoveries, with actual losses charged
as reductions to the allowance.
The following table sets forth information regarding BankUnited's allowance
for loan losses for the periods indicated:
<TABLE>
<CAPTION>
For the Years Ended September 30,
-------- -------- -------- -------- --------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, balance (at beginning
of period) .................................................... $ 12,107 $ 6,128 $ 3,693 $ 2,158 $ 1,469
Provisions (credit) for loan losses ............................ 4,645 7,939 1,700 1,295 (120)
Allowance from acquisitions .................................... -- -- 1,262 775 183
Loans charged off:
One-to-four family residential loans ......................... (997) (702) (508) (604) (493)
Commercial real estate ....................................... -- (733) -- -- --
Construction ................................................. -- (197) -- -- --
Commercial business .......................................... (2,595) (21) (30) -- --
Consumer ..................................................... (267) (395) (61) -- --
-------- -------- -------- -------- --------
Total ...................................................... (3,859) (2,048) (599) (604) (493)
-------- -------- -------- -------- --------
Recoveries:
One-to-four family residential loans ......................... 74 49 33 48 1,119
Commercial real estate ....................................... 8 1 -- -- --
Commercial business .......................................... 53 -- 30 21 --
Consumer ..................................................... 4 38 9 -- --
-------- -------- -------- -------- --------
Total ...................................................... 139 88 72 69 1,119
-------- -------- -------- -------- --------
Allowance for loan losses, balance (at end of period) .......... $ 13,032 $ 12,107 $ 6,128 $ 3,693 $ 2,158
======== ======== ======== ======== ========
</TABLE>
Historically, recoveries of charged off loans have been minimal since
charged off loans have been primarily one-to-four family residential loans and
typically the only substantial asset available to BankUnited is the real estate
securing the loan, which is acquired through foreclosure and sold. However, in
its fiscal year ended September 30, 1996, BankUnited received a recovery of
approximately $1.0 million as settlement of litigation BankUnited initiated
against a seller of residential mortgage loans. BankUnited is not aware of any
significant liability related to REO or loans that may be foreclosed.
47
<PAGE>
The following table sets forth the allocation of general allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
As of September 30,
------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
% of Loans in % of Loans in % of Loans in
Each Category Each Category Each Category
to Total to Total to Total
Loans Before Loans Before Loans Before
Amount Net Items Amount Net Items Amount Net Items
------------------ ------------------ ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
One-to-four family residential
mortgages .............................................. $ 4,045 87.8% $ 4,200 91.1% $ 1,917 92.4%
Multi-family residential ................................. 927 1.9 442 0.9 98 0.8
Commercial real estate ................................... 2,163 4.2 2,873 4.3 2,081 4.8
Construction ............................................. 465 1.1 154 0.5 225 0.3
Land ..................................................... 1,166 0.9 1,171 0.7 265 0.2
Commercial business ...................................... 2,435 2.3 1,798 1.5 307 0.5
Consumer ................................................. 1,206 1.8 848 1.0 356 1.0
Unallocated .............................................. 625 N/A 621 N/A 879 N/A
------------------ ------------------ ------------------
Total allowances for loan
losses ................................................. $13,032 100.0% $12,107 100.0% $ 6,128 100.0%
================== ================== ==================
<CAPTION>
As of September 30,
--------------------------------------
1997 1996
------------------ ------------------
% of Loans in % of Loans in
Each Category Each Category
to Total to Total
Loans Before Loans Before
Amount Net Items Amount Net Items
------------------ ------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance at end of period
applicable to:
One-to-four family residential
mortgages .............................................. $1,873 89.2% $1,380 88.7%
Multi-family residential ................................. 61 1.8 123 2.0
Commercial real estate ................................... 1,486 7.4 493 7.6
Construction ............................................. 62 0.4 -- 0.0
Land ..................................................... 48 0.5 27 0.4
Commercial business ...................................... 108 0.6 68 0.9
Consumer ................................................. 22 0.1 29 0.4
Unallocated .............................................. 33 N/A 38 N/A
------------------ ------------------
Total allowances for loan
losses ................................................. $3,693 100.0% $2,158 100.0%
================== ==================
</TABLE>
Management believes that the allowance for loan losses of $13.0 million as
of September 30, 2000 is adequate given the strength of BankUnited's collateral
position and the attention given to loan review and classifications. There can
be no assurance that additional provisions for loan losses will not be required
in future periods.
48
<PAGE>
Year 2000
Computer programs which recognize a date using two digits (rather than
four) to define the applicable year may consider a date using "00" as the year
1900 rather than the year 2000, or fail to recognize the year 2000 as a leap
year. This is generally referred to as the "Year 2000 Issue," which may affect
the performance of computer programs, hardware, software and other products with
embedded computer technology that is date sensitive. In preparation for the Year
2000, BankUnited extensively reviewed, modified and tested its systems prior to
the Year 2000, and has been substantially Year 2000 compliant since June 30,
1999.
On and after January 1, 2000 and February 29, 2000 BankUnited conducted
extensive tests of its information systems to verify that the systems correctly
recognized the Year 2000 and treated it as a leap year. Additionally, BankUnited
associates have closely monitored computer output for accuracy subsequent to
January 1, 2000 and February 29, 2000. These tests and reviews have not resulted
in any incidents that would materially impact the operation or financial
condition of BankUnited, and BankUnited has not, as of this date, experienced
any significant disruption due to a Year 2000 failure.
BankUnited incurred approximately $1.9 million in costs associated with
becoming Year 2000 compliant, excluding internal costs. The costs consisted of
approximately $0.7 million for the replacement of hardware and software, $0.9
million for the write-off of non-compliant hardware and software and $0.3
million for other incremental costs. BankUnited does not separately track the
internal costs incurred for the Year 2000 project and such costs are principally
the related payroll costs for its information systems department.
Discussion of Financial Condition Changes for the Years Ended September 30, 2000
and 1999
Total assets increased 12.2% from $4.1 billion at September 30, 1999 to
$4.6 billion at September 30, 2000. The increase is mostly due to the increase
in loans.
Loans. BankUnited's loans receivable, net (including loans held for sale)
increased $367.9 million from September 30, 1999 to September 30, 2000. Of
BankUnited's total net loans receivable of $3.7 billion at September 30, 2000,
$1.9 billion or 51.4% were adjustable-rate mortgages ("ARMs") and $1.8 billion
or 48.6% were fixed rate mortgages. Mortgage loan purchases of $5.5 million and
loan originations of $924 million were offset by repayments of $554.6 million
(net of accretion of discount and amortization of premium) and loan sales of
$10.2 million.
Mortgage loans held for sale decreased $91 million to $312.6 million as of
September 30, 2000 as compared to $403.6 million at September 30, 1999
principally due to residential loan repayments of $95.1 million and sales of
$10.2 million. This decrease was partially offset by originations of loans held
for sale of $9.3 million.
49
<PAGE>
During the fiscal years ended September 30, 2000, 1999, and 1998,
residential loans totaling $10.2 million, $23.6 million, and $173.5 million,
respectively, were sold for a gain of $71,000, a loss of $5,000, and a gain of
$4.0 million, respectively.
Federal Home Loan Bank (FHLB) Overnight Deposits. FHLB overnight deposits
increased $197.2 million to $247.6 million at September 30, 2000 from $50.4
million at September 30, 1999. This change is due to adjustments to BankUnited's
liquidity position in response to the growth in the balance sheet and projected
cash requirements.
Securities Purchased Under Agreements To Resell. BankUnited had $63 million
in securities purchased under agreements to resell at September 30, 2000 .
BankUnited invest the unapplied proceeds of borrowings to maximize earnings
while maintaining liquidity until such time as loans and/or securities of a
price and quality in line with BankUnited's investment strategy become
available.
Tax Certificates. BankUnited's investment in tax certificates decreased
$9.1 million, or 61.5%, to $5.7 million at September 30, 2000 from $14.8 million
at September 30, 1999. The decrease is a result of certificate redemptions and
repayments and the decision to discontinue investing in this line of business.
Investments. Investments held to maturity remained consistent at $5.1
million as of September 30, 2000 and 1999. Investments available for sale
decreased $2.6 million, or 13%, to $17.4 million as of September 30, 2000 as
compared to $20.0 million as of September 30, 1999. The decrease in fiscal 2000
was primarily due to the maturity and redemption of investment securities.
Mortgage-Backed Securities. Mortgage-backed securities held to maturity
increased $19.8 million, or 9.8%, to $222.6 million at September 30, 2000 from
$202.8 million at September 30, 1999. The increase was due to purchases of GNMA,
FNMA, and FHLMC mortgage backed securities.
BankUnited's available for sale mortgage-backed securities portfolio
decreased $24.6 million, or 17%, to $119.8 million as of September 30, 2000 from
$144.4 million as of September 30, 1999. This decrease was due to repayments and
amortization of $23.1 million, and a reduction of $1.5 million in the market
value of the underlying securities.
Other Interest Earning Assets. Other interest earning assets increased $7.8
million, or 14.2%, to $62.7 million at September 30, 2000 from $54.9 million at
September 30, 1999. This category primarily represents stock in the FHLB which
BankUnited is required to purchase in proportion to FHLB advances.
Deposits. Deposits increased by $329.7 million, or 14.5%, from $2.3 billion
at September 30, 1999 to $2.6 billion at September 30, 2000, due to an increase
in certificates of deposit accounts of $374 million and non-interest bearing
checking accounts of $22.2 million. The increases were offset by decreases in
passbook savings of $54.6 million, insured money market accounts of $2.3 million
and NOW accounts of $9.6 million.
50
<PAGE>
Securities Sold Under Agreements To Repurchase. Securities sold under
agreements to repurchase decreased by $22.5 million, or 71% to $9.2 million at
September 30, 2000 from $31.7 million at September 30, 1999 mainly due to
maturity of outstanding repurchase agreements which were not renewed.
FHLB Advances. FHLB advances increased approximately $200 million, or 18.2%
to $1.3 billion at September 30, 2000 from $1.1 billion at September 30, 1999
mainly due to increased funding needs at the Bank.
Senior Notes. Senior Notes remained at $200 million. These Senior Notes
were issued and sold during the second quarter of fiscal 1999. See Notes to the
Consolidated Financial Statements.
Trust Preferred Securities. Trust Preferred securities decreased by $6.1
million or 2.8% from $218.5 million at September 30, 1999 to $212.4 million at
September 30, 2000. In November 1999, the Board of Directors of BankUnited
authorized the purchase from time to time in the open market, or otherwise, of
up to 300,000 shares of trust preferred securities issued by BankUnited's trust
subsidiaries. At September 30, 2000, BankUnited had purchased a total of 158,499
shares of trust preferred securities issued by its trust subsidiaries on the
open market at a cost of $4.4 million. A gain of $1.5 million, before taxes, was
recorded upon acquisition of these securities.
Stockholders' Equity. BankUnited's total stockholders' equity was $202.6
million at September 30, 2000, an increase of $12.5 million, or 6.6%, from
$190.1 million at September 30, 1999. The increase is due primarily to current
year income after preferred stock dividends of $15 million and increase in
additional paid in capital of $357,000 offset by an increase in accumulated
other comprehensive loss of $1.8 million and $1.1 million in treasury stock.
In May 1999, the Board of Directors of BankUnited authorized the purchase
of shares of the 9% Preferred Stock on the open market, as deemed appropriate,
and, if the market is appropriate, the retirement of the 9% Preferred Stock.
During fiscal 2000, BankUnited purchased a total of 1,000 shares of its 9%
Preferred Stock on the open market at a cost of $7,250.
In December 1998, the Board of Directors of BankUnited authorized the
purchase from time to time in the open market, or otherwise, of up to 1,000,000
shares of BankUnited's Class A Common Stock at such prices as the Executive
Committee shall deem advantageous. This is in addition to the authority granted
to purchase shares for compensation and benefit programs. Through September 30,
2000, BankUnited purchased a total of 333,000 shares of its Class A Common Stock
on the open market at a cost of $2.8 million. As of the date of filing of this
Annual Report on Form 10-K, no additional purchases have been made.
51
<PAGE>
Comparison of Operating Results for the Fiscal Years Ended September 30, 2000
and 1999
Net Income after Preferred Stock Dividends. Net income after preferred
stock dividends increased to $15 million for the year ended September 30, 2000,
compared to a loss of $4.4 million for the year ended September 30, 1999. The
loss in fiscal 1999 was attributed to the restructuring charges. See
"Restructuring" above. The increase in net income after preferred stock
dividends for the year ended September 30, 2000 consisted of an increase in
interest and fees on loans of $61 million, a reduction in provision for loan
losses of $3.3 million, offset by an increase in interest expense of $31.6
million and an increase in tax expense of $12.2 million.
Net Interest Income. Net interest income before provision for loan losses
increased $30.1 million, or 65.4%, to $76.2 million for the year ended September
30, 2000 from $46.0 million for the year ended September 30, 1999. Net interest
margin increased to 1.91% for the year ended September 30, 2000, compared to
1.27% for the same prior year period. For the year ended September 30, 2000, the
increase in the net interest margin was due to an increase in the yield on
interest-earning assets to 7.39% from 6.44% in 1999, primarily attributable to
the increased yields on total loans, partially offset by a 33 basis point
increase in the cost of interest-bearing liabilities to 5.65% from 5.32% in
1999.
Interest income increased $61.7 million, or 26.4%, to $295.3 million for
the year ended September 30, 2000 from $233.6 million for the year ended
September 30, 1999. Interest income for fiscal year 2000 was affected by the
increase in outstanding commercial and commercial real estate loans combined
with an increased annual interest rate yield of 9.19% as compared to 8.45% at
September 30, 2000 and 1999, respectively, for commercial loans and 9.08% as
compared to 8.72% at September 30, 2000 and 1999, respectively, for commercial
real estate.
52
<PAGE>
Interest expense for the year ended September 30, 2000, increased $31.6
million, or 16.9%, to $219.1 million from $187.5 million for the year ended
September 30, 1999, primarily due to increases in interest expense on
interest-bearing deposits. Interest expense on interest-bearing deposits
increased $19.9 million, or 18.7%, to $126.6 million for the year ended
September 30, 2000, from $106.7 million for the prior year as a result of an
increase in the average balance of interest-bearing deposits to $2.4 billion for
the year ended September 30, 2000, from $2.2 billion for the prior year, offset
by a 40 basis point increase in the average cost of interest-bearing deposits to
5.18% for the year ended September 30, 2000, from 4.78% for the prior year.
Interest expense on the trust preferred securities decreased $255,000, or 1.2%
to $20.9 million for the year ended September 30, 2000, from $21.2 million for
the prior year, as a result of a decrease in the average balance of the trust
preferred securities to $215.6 million for the year ended September 30, 2000
from $218.5 million for the prior year due to the acquisition of 158,499 shares
of these securities by BankUnited during fiscal 2000 .
Other factors influencing the level of interest expense include the
issuance of the Bank's Senior Notes during the second quarter of fiscal 1999,
which generated interest expense of $7.6 million for the year ended September
30, 1999 as compared to $11.4 million for the year ended September 30, 2000, at
a weighted average cost of 5.71%; and a $8.1 million increase in interest
expense on FHLB advances and other borrowings to $60.2 million for the year
ended September 30, 2000 from $52.1 million for the prior year, resulting from
an increase in the average balance of FHLB advances and other borrowings to $1.0
billion for the year ended September 30, 2000, from $942.9 million for the prior
year. Overall, the average rate paid on interest-bearing liabilities increased
33 basis points to 5.65% on an average balance of $3.9 billion for the year
ended September 30, 2000, from 5.32% on an average balance of $3.5 billion for
the year ended September 30, 1999.
Yields Earned and Rates Paid. The following table sets forth certain
information relating to the categories of BankUnited's interest-earning assets
and interest-bearing liabilities for the periods indicated, including the effect
on yields of the accelerated amortization of purchase premiums on the One-Year
CMT loan portfolio and a related security recorded in the first quarter of
fiscal 1999 and the third and fourth quarter of fiscal 1998 due to the high
level of prepayments, the $14.8 million charge in the second quarter of fiscal
1999 related to the write-off of purchase premiums on the One-Year CMT loan
portfolio and the continuing accelerated amortization of purchase premiums on a
related security. All yield and rate information is calculated on an annualized
basis by dividing the income or expense item for the period by the average
balances during the period of the appropriate balance sheet item. Net interest
margin is calculated by dividing net interest income by average interest-earning
assets. Non-accrual loans are included for the appropriate periods, whereas
recognition of interest on such loans is discontinued and any remaining accrued
interest receivable is reversed, in conformity with generally accepted
accounting principles and federal regulations. The yields and net interest
margins appearing in the following table have been calculated on a pre-tax
basis.
53
<PAGE>
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------
2000 1999
As of ------------------------------ -----------------------------
09/30/00
Yield/ Average Yield/ Average Yield/
Rate(1) Balance Interest Rate Balance Interest Rate
----- ---------- --------- ----- ---------- --------- -----
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (2) ...................... 7.77% $3,515,652 $ 260,690 7.42% $3,038,086 $ 199,704 6.57%
Mortgage-backed securities (2) ................. 7.01% 354,271 24,866 7.02% 337,333 18,493 5.48
Short-term investments (3) ..................... 6.99% 43,331 3,229 7.45% 144,842 7,590 5.24
Tax certificates ............................... 0.87% 10,585 784 7.41% 26,666 1,882 7.06
Long-term investments and
FHLB stock, net .................................. 7.73% 73,816 5,746 7.78% 80,042 5,881 7.35
----- ---------- --------- ----- ---------- --------- -----
Total interest-earning assets .................... 7.65% 3,997,655 295,315 7.39% 3,626,969 233,550 6.44
----- ---------- --------- ----- ---------- --------- -----
Interest-bearing liabilities:
NOW/Money Market ............................... 2.67% 264,577 6,777 2.56% 272,922 7,820 2.87
Savings ........................................ 4.88% 355,320 16,825 4.74% 360,019 16,010 4.45
Certificate of deposits ........................ 6.23% 1,823,606 103,027 5.65% 1,599,661 82,825 5.18
Trust preferred securities ..................... 9.69% 215,600 20,899 9.69% 218,500 21,154 9.68
Senior notes ................................... 5.71% 200,000 11,429 5.71% 132,055 7,612 5.76
FHLB advances and other borrowings ............. 6.24% 1,018,782 60,189 5.91% 942,871 52,094 5.52
----- ---------- --------- ----- ---------- --------- -----
Total interest-bearing liabilities ............... 6.05% $3,877,885 $ 219,146 5.65% $3,526,028 $ 187,515 5.32
===== ========== ========= ===== ========== ========= =====
Excess of interest-earning assets
over interest-bearing liabilities .............. $ 119,770 $ 100,941
========== ==========
Net interest income .............................. $ 76,169 $ 46,035
========= =========
Interest rate spread ............................. 1.60% 1.74% 1.12%
===== ===== =====
Net interest margin .............................. 1.78% 1.91% 1.27%
===== ===== =====
Ratio of interest-earning assets to
interest-bearing liabilities ................... 103.09% 102.86%
========== ==========
<CAPTION>
At September 30,
-------------------------------
1998
-------------------------------
Average Yield/
Balance Interest Rate
---------- --------- -----
(dollar amounts in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (2) ...................... $2,529,219 $ 177,252 7.01%
Mortgage-backed securities (2) ................. 288,832 16,588 5.74
Short-term investments (3) ..................... 86,642 5,013 5.79
Tax certificates ............................... 38,978 2,952 7.57
Long-term investments and
FHLB stock, net .................................. 81,600 5,762 7.06
---------- --------- -----
Total interest-earning assets .................... 3,025,271 207,567 6.86
---------- --------- -----
Interest-bearing liabilities:
NOW/Money Market ............................... 163,513 5,083 3.11
Savings ........................................ 193,564 8,983 4.64
Certificate of deposits ........................ 1,384,710 79,365 5.73
Trust preferred securities ..................... 173,288 16,952 9.78
Senior notes ................................... -- -- 0.00
FHLB advances and other borrowings ............. 998,562 57,160 5.72
---------- --------- -----
Total interest-bearing liabilities ............... $2,913,637 $ 167,543 5.75
========== ========= =====
Excess of interest-earning assets
over interest-bearing liabilities .............. $ 111,634
==========
Net interest income .............................. $ 40,024
=========
Interest rate spread ............................. 1.11%
=====
Net interest margin .............................. 1.32%
=====
Ratio of interest-earning assets to
interest-bearing liabilities ................... 103.83%
==========
</TABLE>
----------------
(1) The yields and rates along with the corresponding interest rate spread and
net interest margin represent the yields earned and rates paid on
BankUnited's interest-earning assets and interest-bearing liabilities,
respectively, as of the close of business on September 30, 2000 and do not
include any estimates of the effect accelerated amortization of purchased
premiums would have on the yields earned.
(2) The yields and rates along with the corresponding interest rate spread and
net interest margin for the fiscal year ended September 30, 1999 reflect
the accelerated amortization of purchase premiums on the One-Year CMT loan
portfolio and a related security in the first quarter of fiscal 1999 and
the $14.8 million charge in the second quarter of fiscal 1999 related to
the write-off of purchase premiums on the One-Year CMT loan portfolio and
the continuing accelerated amortization of purchase premiums on a related
security. The yields and rates along with the corresponding interest rate
spread and net interest margin for the fiscal year ended September 30, 1998
reflect the accelerated amortization of purchase premiums on the one-year
CMT loan portfolio in the third and fourth quarter of fiscal 1998.
(3) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
Rate/Volume Analysis. The following table presents, for the periods
indicated, the changes in interest income and the changes in interest expense
attributable to the changes in interest rates and the changes in the volume of
interest-earning assets and interest-bearing liabilities. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to: (i) changes in volume (change in volume
multiplied by prior year rate); (ii) changes in rate (change in rate multiplied
by prior year volume); (iii) changes in rate/volume (change in rate multiplied
by change in volume); and (iv) total changes.
54
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended September 30,
2000 v. 1999 1999 v. 1998
----------------------------------------- ------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
Changes Changes
Changes Changes in Total Changes Changes in Total
in in Rate/ Increase in in Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
-------- -------- -------- --------- ---------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Loans ....................................... $ 31,392 $ 25,574 $ 4,020 $ 60,986 $ 35,662 $(10,997) $ (2,213) $ 22,452
Mortgage-backed securities and
collateralized mortgage obligations ....... 929 5,184 260 6,373 2,785.0 (753) (127) 1,905
Short-term investments (1) .................. (5,320) 3,204 (2,245) (4,361) 3,367.0 (473) (317) 2,577
Tax Certificates ............................ (1,135) 92 (56) (1,099) (932.0) (201) 63 (1,070)
Long-term investments and FHLB stock ........ (457) 351 (29) (135) (110.0) 233 (4) 119
-------- -------- -------- --------- ---------- -------- -------- --------
Total interest-earning assets ............... 25,409 34,405 1,950 61,764 40,772 (12,191) (2,598) 25,983
-------- -------- -------- --------- ---------- -------- -------- --------
Interest expense attributable to:
NOW/Money Market ............................ (239) (828) 24 (1,043) 3,401.0 (398) (266) 2,737
Savings ..................................... (209) 1,044 (20) 815 7,725.0 (375) (323) 7,027
Certificates of Deposit ..................... 11,595 7,549 1,058 20,202 12,320.0 (7,669) (1,191) 3,460
Trust preferred securities .................. (281) 27 (1) (255) 4,423.0 (175) (46) 4,202
Senior Notes ................................ 3,917 (66) (34) 3,817 -- -- 7,612 7,612
FHLB advances and other borrowings .......... 4,194 3,610 290 8,094 (3,188.0) (1,989) 111 (5,066)
-------- -------- -------- --------- ---------- -------- -------- --------
Total interest-bearing liabilities .......... 18,977 11,336 1,317 31,630 24,681 (10,606) 5,897 19,972
-------- -------- -------- --------- ---------- -------- -------- --------
Increase (decrease) in net
interest income ............................ $ 6,432 $ 23,069 $ 633 $ 30,134 $ 16,091 $ (1,585) $ (8,495) $ 6,011
======== ======== ======== ========= ========== ======== ======== ========
</TABLE>
(1) Short-term investments include FHLB overnight deposits, securities
purchased under agreements to resell, federal funds sold and certificates
of deposit.
Provision for Loan Losses. The provision for loan losses decreased $3.3
million to $4.6 million for the year ended September 30, 2000 compared to $7.9
million for the year ended September 30, 1999. Included in the $7.9 million
provision is a $6.3 million provision recorded in the second quarter of 1999 as
a result of management's review of interest earning assets. For a detailed
discussion of BankUnited's asset quality and allowance for loan losses, see
"Asset Quality."
Non-interest Income. Non-interest income increased $1.3 million to $6.1
million for the year ended September 30, 2000 compared to $4.8 million for the
year ended September 30, 1999. The increase is mainly attributed to an increase
in service charges on deposits of approximately $276,000 and an increase in
service charges and fees on loans of approximately $744,000, and a $656,000
increase in sale of investment products through BUFC. These increases were
partially offset by a decrease of approximately $400,000 of loan servicing
income, net of the amortization of loan mortgage servicing rights.
Non-interest Expenses. Operating expenses increased $4.1 million to $52.5
million for the year ended September 30, 2000 compared to $48.4 million for the
year ended September 30, 1999. The increase in expenses is primarily
attributable to the increased staff levels necessitated by BankUnited's growth.
55
<PAGE>
Income Taxes. The income tax provision increased to a net expense of $10.2
million, for the year ended September 30, 2000, compared to a net benefit of
$1.9 million for the year ended September 30, 1999. This increase was due to
BankUnited's strategic changes which increased income before taxes,
extraordinary item and preferred stock dividends to $25.1 million for the period
ended September 30, 2000 versus a loss of $5.5 million for the same period in
1999.
Extraordinary Item. In November 1999, the Board of Directors of BankUnited
authorized the purchase, from time to time, in the open market, or otherwise, of
up to 300,000 shares of the Trust Preferred Securities. During fiscal 2000,
BankUnited purchased 158,499 shares of the Trust Preferred Securities, at a cost
of $4.4 million, resulting in an extraordinary gain as a result of their early
extinguishment in the amount of $0.9 million, net of $0.6 million in taxes.
Comparison of Operating Results for the Fiscal Years Ended September 30, 1999
and 1998
Net Income after Preferred Stock Dividends. Net income after preferred
stock dividends decreased to a loss of $4.4 million for the year ended September
30, 1999, compared to net income after preferred stock dividends of $6.5 million
for the year ended September 30, 1998. The primary reasons for the decline in
net income after preferred stock dividends for the year ended September 30, 1999
were (i) the accelerated amortization of purchase premiums on the One-Year CMT
loan portfolio and a related security recorded in the first quarter of fiscal
1999 due to the high level of prepayments; (ii) the write-off of purchase
premiums on the One-Year CMT loan portfolio, and the continuing acceleration of
amortization of purchase premiums on a related security in the second quarter of
fiscal 1999; (iii) the provision for loan losses in the second quarter resulting
from the re-evaluation of the loan portfolio; (iv) the provision for tax
certificate losses in the second quarter resulting from the increase in
nonperforming tax certificates and the decision to discontinue investing in this
asset; and (v) other miscellaneous charges in the second quarter including costs
associated with becoming Year 2000 compliant. See "Restructuring" above. A more
detailed discussion of each major category of income and expenses follows.
Net Interest Income. Net interest income before provision for loan losses
increased $6.0 million, or 15.0%, to $46.0 million for the year ended September
30, 1999 from $40.0 million for the year ended September 30, 1998. This increase
was reduced as a result of the accelerated amortization of purchase premiums on
the One-Year CMT loan portfolio and a related security recorded in the first
quarter of fiscal 1999 and the $14.8 million charge in the second quarter of
fiscal 1999 related to the One-Year CMT loan portfolio and a related security.
This charge contributed to the reduction of the net interest margin to 1.27% for
the year ended September 30, 1999, compared to 1.32% for the same prior year
period. For the year ended September 30, 1999, the decrease in the net interest
margin was due to a decrease in the yield on interest-earning assets to 6.44%
from 6.86% for the same period in 1998, primarily attributable to the lower
yields on the loans purchased, partially offset by 43 basis point decrease in
the cost of interest-bearing liabilities to 5.32% from 5.75% for the same period
in 1998.
Interest income increased $26.0 million, or 12.5%, to $233.6 million for
the year ended September 30, 1999 from $207.6 million for the year ended
September 30, 1998. Interest income for the fiscal year 1999 was affected by the
following:
56
<PAGE>
The results of operations for the three months ended December 31, 1998
reflect the accelerated amortization of premiums on purchased loans and
mortgage-backed securities. The amortization of premiums, net of discounts and
deferred origination costs, increased from $1.0 million for the three months
ended December 31, 1997 to $6.1 million for the same period in fiscal 1999. The
increase in premium amortization was a result of the high level of loan
prepayments experienced in the first quarter of fiscal 1999. The results of
operations for the three months ended March 31, 1999 include the $14.8 million
charge and $0.2 million of other amortization for a total reduction to interest
income of $15.0 million. The results of operations for the six months ended
September 30, 1999 include $2.8 million of amortization compared to $9.5 million
for the same period in fiscal 1998. The decrease is the result of the reduction
in the level of prepayments and the charge in the second quarter of fiscal 1999
to reduce the carrying value of the purchased One-Year CMT portfolio to the
lower of cost or market. The decrease in interest income due to these net
reductions was offset by an increase in the average balance of loans receivable,
which increased $0.5 billion or 20.1%, for the year ended September 30, 1999, as
compared to the same prior year period.
Interest expense for the year ended September 30, 1999, increased $20.0
million, or 11.9%, to $187.5 million from $167.5 million for the year ended
September 30, 1998, primarily due to increases in interest expense on
interest-bearing deposits and the trust preferred securities. Interest expense
on interest-bearing deposits increased $13.3 million, or 14.2%, to $106.7
million for the year ended September 30, 1999, from $93.4 million for the prior
year as a result of an increase in the average balance of interest-bearing
deposits to $2.2 billion for the year ended September 30, 1999, from $1.7
billion for the year before, offset by a 58 basis point decrease in the average
cost of interest-bearing deposits to 4.78% for the year ended September 30,
1999, from 5.36% for the prior year. Interest expense on the trust preferred
securities increased $4.2 million, or 24.7% to $21.2 million for the year ended
September 30, 1999, from $17.0 million for the prior year, as a result of an
increase in the average balance of the trust preferred securities to $218.5
million for the year ended September 30, 1999 from $173.3 million for the prior
year.
Other factors influencing the level of interest expense include the
issuance of the Bank's Senior Notes during the second quarter of fiscal 1999,
which generated interest expense of $7.6 million for the year ended September
30, 1999, at a weighted average cost of 5.76%; and a $5.1 million decrease in
interest expense on FHLB advances and other borrowings to $52.1 million for the
year ended September 30, 1999 from $57.1 million for the prior year, resulting
from a decrease in the average balance of FHLB advances and other borrowings to
$942.9 million for the year ended September 30, 1999, from $998.6 million for
the prior year. Overall, the average rate paid on interest-bearing liabilities
decreased 43 basis points to 5.32% on an average balance of $3.5 billion for the
year ended September 30, 1999, from 5.75% on an average balance of $2.9 billion
for the year ended September 30, 1998.
Provision for Loan Losses. The provision for loan losses increased $6.2
million to $7.9 million for the year ended September 30, 1999 compared to $1.7
million for the year ended September 30, 1998. Included in the $7.9 million
provision is a $6.3 million provision recorded in the second quarter as a result
of management's review of interest earning assets. The provision recorded in the
second quarter of fiscal 1999 relates to one-to-four family residential mortgage
loans ($2.1 million), indirect consumer loans ($0.3 million) and commercial
loans ($3.9 million). The provision for loan losses represents management's
estimate of the charge to operations after reviewing the nature,
57
<PAGE>
volume, delinquency status, and inherent risk in the loan portfolio in relation
to the allowance for loan losses. For a detailed discussion of BankUnited's
asset quality and allowance for loan losses, see "Asset Quality."
Non-interest Income. Non-interest income decreased $1.4 million to $4.8
million for the year ended September 30, 1999 compared to $6.2 million for the
year ended September 30, 1998. The results reflect a $4.4 million decrease in
gains on sales of assets related to a reduction in the sales of loans and
mortgage-backed securities. Core income, comprised of net service fee income,
service charges and other fees on deposits and other non-interest income
increased $3.0 million reflecting BankUnited's increased emphasis on
implementing new products and services to meet customer needs.
Non-interest Expenses. Operating expenses increased $16.2 million to $48.4
million for the year ended September 30, 1999 compared to $32.2 million for the
year ended September 30, 1998. Included in the increase in non-interest expenses
are the expenses incurred in the second quarter of fiscal 1999 for the
additional provision for tax certificate losses of $1.1 million, $1.0 million of
expenses related to Year 2000 compliance and $1.0 million of miscellaneous other
charges. The remaining increase in expenses is attributable to the growth
BankUnited has experienced, including the additional costs relating to the
acquisitions of Consumers Bancorp, Inc. and Central Bank during the second and
third quarters, respectively, of the 1998 fiscal year and the opening of two
additional branches in the 1999 fiscal year. Total non-interest expenses, as a
percentage of average assets, increased from 1.03% for the year ended September
30, 1998, to 1.28% for the same period in 1999 as a result of the additional
charges.
Income Taxes. The income tax provision decreased to a net benefit of $1.9
million for the year ended September 30, 1999, compared to a net expense of $5.0
million for the year ended September 30, 1998. This decrease was due to
BankUnited's pre-tax loss during the year ended September 30, 1999, partially
offset by the increase in the effective income tax rate due to the effect of
non-deductible goodwill.
Preferred Stock Dividends. Preferred stock dividends decreased $124,000
to $773,000 for the year ended September 30, 1999 as compared to $897,000 for
the year ended September 30, 1998. This decrease is the result of the retirement
in January 1998 of the 8% Noncumulative Convertible Preferred Stock, Series
1993, partially offset by the issuance of additional shares of Noncumulative
Convertible Preferred Stock, Series B.
58
<PAGE>
Impact of Inflation and Changing Prices.
The financial statements and related financial data and notes presented
herein have been prepared in accordance with Generally Accepted Accounting
Principles (GAAP), which require the measurements of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation.
As a financial institution, virtually all of BankUnited's assets and
liabilities are monetary in nature. As a result, BankUnited is not significantly
affected by the general levels of inflation. BankUnited's net income is mainly
dependent on the spread between the average yield earned on its interest-earning
assets and the average cost incurred on its interest-bearing liabilities.
Therefore, BankUnited's net income is more significantly impacted by changes in
interest rates (see Item 7a. "Quantitative and Qualitative Disclosures about
Market Risk"). Although interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services, interest
rates are affected by actions of Federal Reserve designed to control inflation.
59
<PAGE>
Selected Quarterly Financial Data
Set forth below is selected quarterly data for the fiscal years ended
September 30, 2000 and 1999. The quarterly financial data for the fourth quarter
of fiscal 1999 was not reviewed by BankUnited's independent certified public
accountants in accordance with standards established for such reviews.
<TABLE>
<CAPTION>
2000
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net interest income ............................................ $19,189 $19,638 $19,634 $17,708
Provision for loan losses ...................................... 1,200 1,000 1,000 1,445
Non-interest income ............................................ 1,307 1,570 1,602 1,596
Non-interest expense ........................................... 12,988 13,753 13,777 12,006
------- ------ ------- -------
Income before taxes, extraordinary item and
Preferred stock dividends .................................... 6,308 6,455 6,459 5,853
Income taxes ................................................... 2,579 2,635 2,631 2,402
------- ------ ------- -------
Net income before extraordinary item
and preferred stock dividends ................................ 3,729 3,820 3,828 3,451
Extraordinary item (net of taxes) .............................. 431 261 9 235
------- ------ ------- -------
Net income before preferred stock dividends .................... 4,160 4,081 3,837 3,686
Preferred stock dividends ...................................... 197 198 198 197
------- ------ ------- -------
Net income applicable to common stock .......................... $ 3,963 $3,883 $ 3,639 $ 3,489
======= ====== ======= =======
Basic:
Net income before extraordinary item ......................... $ 0.19 $ 0.2 $ 0.2 $ 0.18
------- ------ ------- -------
Net income after extraordinary item .......................... $ 0.22 $ 0.21 $ 0.2 $ 0.19
======= ====== ======= =======
Diluted:
Net income before extraordinary item ......................... $ 0.19 $ 0.2 $ 0.2 $ 0.18
------- ------ ------- -------
Net income after extraordinary item .......................... $ 0.21 $ 0.21 $ 0.2 $ 0.19
======= ====== ======= =======
<CAPTION>
1999
---------------------------------------------
First Second Third Fourth
Quarter Quarter(1) Quarter Quarter
-------- -------- -------- --------
(Dollars in thousands, except per share data)
Net interest income ............................................ $ 10,089 $ 1,555 $ 15,891 $ 18,500
Provision for loan losses ...................................... 400 6,336 450 753
Non-interest income ............................................ 1,293 1,209 1,189 1,109
Non-interest expense ........................................... 10,222 13,936 11,135 13,100
-------- -------- -------- --------
Income (loss) before taxes and preferred stock dividends ....... 760 (17,508) 5,495 5,756
Income taxes (benefit) ......................................... 364 (6,578) 2,164 2,147
-------- -------- -------- --------
Net income (loss) before preferred stock dividends ............ 396 (10,930) 3,331 3,609
Preferred stock dividends ...................................... 188 196 192 197
-------- -------- -------- --------
Net income (loss) applicable to common stock ................... $ 208 $(11,126) $ 3,139 $ 3,412
======== ======== ======== ========
Basic earnings (loss) per share ................................ $ 0.01 $ (0.61) $ 0.17 $ 0.19
======== ======== ======== ========
Diluted earnings (loss) per share .............................. $ 0.01 $ (0.61) $ 0.17 $ 0.18
======== ======== ======== ========
(1) Includes restructuring charges
</TABLE>
60
<PAGE>
Item 7a. Quantitative and Qualitative Disclosure about Market Risk.
Interest Rate Sensitivity
As a financial intermediary BankUnited invests in various types of
interest-earning assets (primarily loans, mortgage-backed securities, and
investment securities) which are funded largely by interest-bearing liabilities
(primarily deposits, FHLB advances, and trust preferred securities). Such
financial instruments have varying levels of sensitivity to changes in market
interest rates that creates interest rate risk for the Bank. Accordingly,
BankUnited's net interest income, the most significant component of its net
income, is subject to substantial volatility due to changes in interest rates or
market yield curves, particularly if there are differences, or gaps, in the
repricing frequencies of its interest-earning assets and the interest-bearing
liabilities which fund them. BankUnited monitors such interest rate gaps and
seeks to manage its interest rate risk by adjusting the repricing frequencies of
its interest-earning assets and interest-bearing liabilities. The Bank also uses
interest rate caps to limit its interest rate risk. In addition to reviewing
reports which summarize BankUnited's various interest sensitivity gaps,
management utilizes a simulation model which measures the financial impact
certain interest rate scenarios are likely to have on the Bank. As discussed
more fully below, a variety of factors influence the repricing characteristics
and the market values of BankUnited's interest-earning assets and
interest-bearing liabilities, but many of these factors are difficult to
quantify.
The matching of the repricing characteristics of assets and liabilities may
be analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity gap. An asset or liability is said to be interest rate sensitive
within a specific time period if it will contractually mature or reprice, or if
by management assumption, it is likely to be impacted by prepayments, run-off,
early withdrawal, or other such forces which can impact the timing and amount of
a given financial instrument's cash flows. An interest rate sensitivity gap is
the difference between the amount of interest-earning assets anticipated to
mature or reprice within a specific time period and the amount of
interest-bearing liabilities anticipated to mature or reprice within that same
period. A gap is considered to be positive when the amount of interest rate
sensitive assets maturing or repricing within a specific time frame exceeds the
amount of interest rate sensitive liabilities maturing or repricing within that
same time frame. Conversely, a gap is considered to be negative when, within a
given period of time, the amount of interest rate sensitive liabilities exceeds
the amount of interest rate sensitive assets. During a period where the general
level of interest rates is rising, a bank with a negative gap over that period
is likely to experience a decline in net interest income. Alternatively, a bank
with a positive gap will typically experience an increase in net interest
income.
Significant Assumptions Utilized in Managing Interest Rate Risk
Assessing and managing BankUnited's exposure to interest rate risk involves
significant assumptions concerning the exercise of options which are considered
to be imbedded in many of the financial instruments on BankUnited's balance
sheet, the expected movement and relationship of various interest rate indices,
the impact of lag and cap risk, and the general availability of mortgages.
61
<PAGE>
Imbedded Options. A substantial portion of BankUnited's loans and
mortgage-backed securities are residential mortgage loans that contain an
imbedded option allowing borrowers to repay all, or a portion, of their loan
prior to maturity without penalty. The existence of this imbedded prepayment
option can adversely impact BankUnited's financial performance. In general,
marketable securities tend to exhibit an increase in market value when the level
of interest rates falls, and they tend to exhibit a decrease in market value
when the level of interest rates rises. Mortgage loans having imbedded
prepayment options, and the securities which contain them, do tend to decrease
in market value as interest rates rise. However increases in market value due to
a decrease in interest rates are typically suppressed since in a lower rate
environment borrowers are more likely to prepay, or refinance, their mortgage
loans. Consequently, the adverse impact an investment in mortgage loans or
mortgage securities may have on BankUnited's market value of equity, should
interest rates rise, may exceed the beneficial impact should interest rates fall
by a like amount.
Additionally, in an increasing interest rate environment BankUnited's
funding costs may be expected to increase more quickly than would BankUnited's
earnings from its residential mortgage loan assets. This could result in a
deterioration in BankUnited's net interest margin. However, due to the asymmetry
discussed previously, improvement in BankUnited's net interest margin due to a
general decrease in interest rates, may be less than the deterioration in
BankUnited's net interest margin given a similar increase in the general level
of interest rates.
A borrower's propensity for prepayment is dependent upon a number of
factors, some of which are: the loan's current interest rate versus the rate at
which the borrower would be able to refinance, the economic benefit expected to
be obtained from refinancing, the borrower's financial ability to refinance, the
availability of mortgage loans in general, and numerous other economic and
non-economic factors, some of which may vary by geographic region.
With respect to ARM loans, a borrower's incentive to prepay or refinance
his loan is typically influenced by the interest rate index to which the
interest rate on his loan is tied, the amount by which the loan rate is to
differ from its associated index (the margin), the extent to which interest rate
caps (if any) are expected to limit future interest rate adjustments, the extent
to which payment caps (if any) are expected to limit future payment obligations,
and other less quantifiable factors.
In an interest rate environment where long-term interest rates are
declining and related mortgage refinancing opportunities are readily available,
prepayments of ARMs and higher rate, fixed-rate mortgages tend to accelerate.
This was the case the first half of fiscal 1999. BankUnited's results of
operations for the first quarter of fiscal year 1999 reflect the accelerated
amortization of premiums on purchased loans and mortgage-backed securities due
to such refinancings. BankUnited continued to experience high levels of
prepayments in the second quarter of fiscal 1999, the effects of which are
included in the $14.8 million charge to write-off the remaining purchase
premiums on the One-Year CMT loan portfolio and to record the continuing
accelerated amortization of purchase premiums on a similar security. In
addition, $0.2 million of other amortization was recorded for a total reduction
to income of $15.0 million. During the third quarter of fiscal 1999, long-term
interest rates rose slightly resulting in a significant decrease in the level of
prepayments. As a result of this decline in prepayments and the reduction in the
balance of premiums to amortize in the second half
62
<PAGE>
of fiscal 1999, the amortization of premiums, net of discounts and deferred
origination costs, decreased to $2.8 million for the six months ended September
30, 1999. As of September 30, 1999, BankUnited's purchased premiums, net of
discounts, were $3.5 million as compared to $866,000 at September 30, 2000.
BankUnited has reviewed its practice of purchasing mortgage loans in the
secondary market, particularly ARM loans, and has put increased emphasis on
originating its own loans. Over time, management expects this to mitigate
BankUnited's exposure to the adverse impact accelerated premium amortization can
have on its net interest income
Investment securities, other than those with early call provisions,
generally do not contain significant imbedded options that results in greater
degree of repayment predictability. While savings and checking deposits
generally may be withdrawn upon customer request without prior notice, on an
overall basis, one customer's withdrawal is likely to be offset by another
customer's deposit resulting in a dependable source of funds. Time deposits are
generally subject to early withdrawal penalties, which results in the large
majority of these deposits being maintained until maturity. Similarly, term FHLB
advances have prepayment penalties, which discourage early repayment by the
Bank. BankUnited's trust preferred securities may be redeemed at varying times
and $70 million of these securities may be redeemed through 2016 at a premium.
(See Notes to Consolidated Financial Statements for further discussion of the
trust preferred securities).
BankUnited borrows from the FHLB in the form of advances to fund
operations. These advances have a variety of terms, rates and repayment
provisions. A significant portion of BankUnited's advances were obtained through
a convertible advances program that permits the FHLB to convert an advance from
a fixed-rate basis to a floating-rate basis at its discretion. It is highly
probable that the advances will be converted in a rising interest rate
environment. Should the FHLB elect to exercise this option, BankUnited's cost of
funds may be affected adversely.
BankUnited also borrows under the "knockout" advance program offered by the
FHLB. In general, a knockout advance is structured as a fixed rate advance that
the FHLB may convert to a floating rate indexed to the 3-month LIBOR rate if, at
the end of any three month period after the non-conversion period, the 3-month
LIBOR rate equals or exceeds an agreed upon threshold rate. In general
BankUnited seeks to set the threshold at a rate that is higher than current
market interest rates. Should a particular advance be converted by the FHLB, its
rate will reset quarterly for the remainder of its term.
BankUnited also limits its interest rate risk by purchasing interest rate
caps. At present BankUnited holds five interest rate cap contracts totaling $800
million. The contracts require the counter-party to pay the BankUnited quarterly
interest payments based on the notional amount and the difference between the
index and the cap rate, if and when the index exceeds the cap rate, in return
for a one time fee paid by the BankUnited (See Notes to Consolidated Financial
Statements for further discussion of interest rate caps).
During fiscal year 2000, BankUnited borrowed a total of $250 million in
knockout advances, each with a 10-year term and a one year non-callable period.
The initial rates on these advances range from 5.92% to 6.94% while the
threshold rates range from 8.50% to 9.75%. BankUnited has chosen to borrow under
the knockout advance program because, as long as these advances remain
63
<PAGE>
unconverted by the FHLB, the stability of BankUnited's net interest margin will
be enhanced. However, if the 3-month LIBOR rate were to rise so as to allow the
FHLB to convert one or more of BankUnited's knockout advances, the funding cost
associated with the converted advance would become higher and more volatile,
negatively impacting BankUnited's net interest margin.
Interest Rate Indices. BankUnited's ARM loans and mortgage-backed
securities are primarily indexed to the One-Year CMT or MTA indices (see
"Business--Lending Activities"). To the extent such loans and mortgage-backed
securities are funded by deposits, FHLB advances, and other interest-bearing
liabilities whose interest costs are influenced by indices not highly correlated
with the One-Year CMT or MTA indices, an environment of changing interest rates
may impact the various indices differently which may lead to significant changes
in the value of, and the net earnings generated from, BankUnited's financial
instruments. Each index is unique, and as such, is uniquely influenced by
various economic and non-economic forces. Therefore, historical relationships
between various indices may not necessarily be indicative of future
relationships.
Cap Risks and Lag Risks. At September 30, 2000 BankUnited's residential
loan portfolio included $1.5 billion of ARMs (40.5% of BankUnited's total loan
portfolio). The ARMs purchased by BankUnited typically have annual interest rate
adjustment caps that limit rate changes to 2% per year. Further, a portion of
these ARMs provide for initial rates of interest which are significantly below
the rates which would prevail were the contractual interest rate index and
margin used for repricing applied initially. Such loans are commonly referred to
as being in their teaser rate period.
In times of sharply rising interest rates, these caps may serve to limit
the increase in interest income generated from certain interest-earning assets.
Conversely, in an environment of sharply falling interest rates, they may reduce
the decline in BankUnited's interest income. Over periods of time where the
general level of interest rates has had time to fluctuate, the alternating
positive and negative effects generated by such interest rate caps will be
largely offsetting. Over shorter periods, however, and to the extent any caps
are actually limiting the interest rate adjustment of any assets, they can
increase the volatility of BankUnited's net interest income, and to a lesser
extent, its market value of equity.
Availability of Mortgage Loans. BankUnited's net income depends
significantly on its ability to originate or acquire mortgage loan assets on
acceptable terms and at favorable spreads over the its borrowing costs. Should
BankUnited be unable to originate or acquire such mortgage loans, its results of
operations will be adversely affected.
In originating or acquiring mortgage loans, BankUnited competes with REITs,
investment banking firms, savings and loan associations, banks, mortgage
bankers, insurance companies, mutual funds, competing lenders, FNMA, FHLMC,
GNMA, and other entities which purchase mortgage loans, some of which have
greater financial resources than BankUnited. Increased competition for the
origination or acquisition of eligible mortgage loans or a diminution in the
supply could result in BankUnited having to incur higher costs eand accept lower
yields. This, in turn, would reduce the amount by which BankUnited's yield on
earning assets would exceeds its cost of funding those assets.
64
<PAGE>
The availability of mortgage loans meeting BankUnited's criteria is
dependent upon, among other things, the size and level of activity in the
residential real estate lending market, which in turn depends on other factors
including the level of interest rates, regional and national economic conditions
and changes in residential real estate values. To the extent the BankUnited is
unable to originate or acquire a sufficient volume of mortgage loans meeting its
criteria, BankUnited's operating results could be adversely affected.
BankUnited's rate-sensitive liabilities maturing or subject to repricing
within one year exceed its rate-sensitive assets maturing or repricing within
the same period. As of September 30, 2000, this circumstance results in a
negative cumulative one-year gap position of 4.59% of total assets. This
mismatch, when coupled with the deregulation of the restrictions previously
imposed on the types of savings products that financial institutions are
permitted to offer, subjects BankUnited's earnings to change based on
fluctuations in interest rates. In terms of managing interest rate risk, one
method available to management is to attempt to more closely match the repricing
frequencies of the Bank's interest-earning assets to that of its
interest-bearing liabilities.
65
<PAGE>
Gap Table. The following table sets forth the amount of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 2000,
expected to reprice or mature in each of the future time periods shown.
<TABLE>
<CAPTION>
At September 30, 2000
Interest Sensitivity Period (1)
--------------------------------------------
6 Months 6 Months - Over 1-
or Less 1 Year 5 Years
----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Investments, tax certificates,
Federal funds sold, FHLB
overnight deposits and other
interest earning assets, at cost ................... $ 375,516 $ 1,157 $ 7,717
Mortgage-backed securities ......................... 58,034 21,327 95,935
Loans:
Adjustable-rate mortgages .......................... 706,032 301,784 721,181
Fixed-rate mortgages ............................... 86,764 82,838 593,705
Commercial and consumer loans ...................... 103,727 12,547 24,724
----------- ----------- -----------
Total loans ...................................... 896,523 397,169 1,339,610
----------- ----------- -----------
Total interest-earning assets .................... $ 1,330,073 $ 419,653 $ 1,443,262
=========== =========== ===========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ...................... $ 23,752 $ 23,754 $ 141,350
Passbook accounts .................................. 22,734 22,743 181,946
Certificate accounts ............................... 758,685 730,014 646,000
----------- ----------- -----------
Total customer deposits .......................... 805,171 776,511 969,296
----------- ----------- -----------
Borrowings:
FHLB advances ...................................... 265,000 100,000 530,000
Senior Notes ....................................... -- -- 200,000
Trust Preferred .................................... 2,800 -- --
Other borrowings ................................... 9,205 -- --
----------- ----------- -----------
Total borrowings ................................. 277,005 100,000 730,000
----------- ----------- -----------
Total interest-bearing liabilities ............... $ 1,082,176 $ 876,511 $ 1,699,296
=========== =========== ===========
Derivative instruments affecting
interest rate sensitivity .......................... $ -- $ -- $ 800,000
=========== =========== ===========
Total interest-earning assets less
interest-bearing liabilities ("GAP") ............... $ 247,897 $ (456,858) $ 543,966
=========== =========== ===========
Ratio of GAP to total assets ..................... 5.45% (10.04)% 14.78%
=========== =========== ===========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities ................................ $ 247,897 $ (208,961) $ 464,005
=========== =========== ===========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities, as a percentage
of total assets .................................. 5.45% (4.59)% 10.19%
=========== =========== ===========
<CAPTION>
At September 30, 2000
Interest Sensitivity Period (1)
--------------------------------------------
Over 5 - Over
10 Years 10 Years Total
----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Investments, tax certificates,
Federal funds sold, FHLB
overnight deposits and other
interest earning assets, at cost ................... $ 340 $ 16,750 $ 401,480
Mortgage-backed securities ......................... 72,854 94,205 342,355
Loans:
Adjustable-rate mortgages .......................... 21,044 818 1,750,859
Fixed-rate mortgages ............................... 468,858 534,200 1,766,365
Commercial and consumer loans ...................... 4,021 558 145,577
----------- ----------- -----------
Total loans ...................................... 493,923 535,576 3,662,801
----------- ----------- -----------
Total interest-earning assets .................... $ 567,117 $ 646,531 $ 4,406,636
=========== =========== ===========
Interest-bearing liabilities:
Customer deposits:
Money market and NOW accounts ...................... $ 17,708 $ -- $ 206,564
Passbook accounts .................................. 97,471 -- 324,894
Certificate accounts ............................... -- -- 2,005,828
----------- ----------- -----------
Total customer deposits .......................... 115,179 -- 2,537,286
----------- ----------- -----------
Borrowings:
FHLB advances ...................................... 356,426 -- 1,251,426
Senior Notes ....................................... -- -- 200,000
Trust Preferred .................................... -- 209,593 212,393
Other borrowings ................................... -- -- 9,205
----------- ----------- -----------
Total borrowings ................................. 356,426 209,593 1,673,024
----------- ----------- -----------
Total interest-bearing liabilities ............... $ 471,605 $ 209,593 $ 4,210,310
=========== =========== ===========
Derivative instruments affecting
interest rate sensitivity .......................... $ -- $ -- $ 800,000
=========== =========== ===========
Total interest-earning assets less
interest-bearing liabilities ("GAP") ............... $ 95,512 $ 436,938 $ 996,326
=========== =========== ===========
Ratio of GAP to total assets ..................... 2.10% 9.60% 21.89%
=========== =========== ===========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities ................................ $ (368,622) $ 68,316
=========== ===========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities, as a percentage
of total assets .................................. (8.10)% 1.50%
=========== ===========
</TABLE>
(1) In preparing the table above, certain, assumptions have been made with
regard to the repricing or maturity of certain assets and liabilities.
Assumptions as to prepayments on first and second mortgage loans and
mortgage-backed securities were obtained from prepayment rate tables that
provide assumptions corresponding to recent actual repricing experienced in
the marketplace. Assumptions have also been made with regard to payments on
tax certificates based on historical experience. Money market, NOW and
passbook accounts are assumed to decay based upon duration estimates
determined by management. The rates paid in these accounts, however, are
determined by management based on market conditions and other factors and
may reprice more slowly than assumed. All other assets and liabilities have
been repriced based on the earlier of repricing or contractual maturity.
The mortgage prepayment rate tables, deposit decay rates and the historical
assumptions used regarding payments on tax certificates should not be
regarded as indicative of the actual repricing that may be experienced by
BankUnited.
66
<PAGE>
In addition to preparing and reviewing periodic gap reports which help
identify repricing mismatches, management uses simulation models which estimate
the impact on net interest income of various interest rate scenarios, balance
sheet trends and strategies. These simulations cover the following financial
instruments: short-term financial instruments, securities, loans, deposits,
borrowings and off-balance sheet financial instruments. These simulations
incorporate assumptions about balance sheet dynamics, such as loan and deposit
growth and pricing, changes in funding mix and asset and liability repricing and
maturity characteristics. Simulations are run under various interest rate
scenarios to determine the impact on net income and capital. From these
scenarios, interest rate risk is quantified and appropriate strategies are
developed and implemented. The overall interest rate risk position and
strategies are reviewed on an ongoing basis by senior management. Based on the
information and assumptions in effect on September 30, 2000, management
estimates the impact of a gradual and parallel 100 basis-point rise or fall in
interest rates over the next 12 months to be between 4% and 8% of net interest
income.
BankUnited recognizes that there are numerous assumptions and estimates
associated with the simulations described above which may not reflect the manner
in which actual yields and costs respond to changes in market interest rates. In
this regard, the simulation model assumes that the composition of BankUnited's
interest sensitive assets and liabilities existing at the beginning of a period
remains relatively constant over the period being measured and also assumes that
the change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. In addition, prepayment estimates and other assumptions within the
model are subjective in nature, involve uncertainties and, therefore, cannot be
determined with precision. For example, the unanticipated prolonged flatness of
the yield curve as well as the volatility in interest rates experienced over the
first six months of fiscal 1999 resulted in accelerated prepayments of loans and
a significant reduction in interest income. This led BankUnited, as part of its
restructuring strategy, to discontinue purchasing in the secondary market
One-Year CMT loans to reduce its exposure to such interest rate risks in future
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Restructuring."
Accordingly, although the simulation model may provide an indication of
BankUnited's interest rate risk exposure at a particular point in time, such
measurements are not intended to provide for a precise forecast of the effect of
changes in market interest rates on BankUnited's net interest income and will
differ from actual results.
BankUnited's operations are affected by many factors beyond its control
such as the overall condition of the economy, monetary and fiscal policies of
the federal government, and regulations specific to the banking industry.
Revenues generated from lending activities are impacted by loan demand, which in
turn impacts the interest rates at which such loans may be made, the supply of
housing, the availability of funds to lend, and the cost of obtaining such
funds.
BankUnited currently utilizes, on a limited basis, derivative financial
instruments designed to reduce the interest rate risks associated with certain
other financial instruments. Specifically, Interest Rate Cap contracts have been
acquired by BankUnited to reduce its exposure to the increased funding costs
that would likely result in an increasing interest rate environment. As was
67
<PAGE>
discussed previously, increased funding costs are not likely to be fully
counterbalanced by an offsetting increase in BankUnited's yield on interest
earning assets. (See Notes to Consolidated Financial Statements for further
discussion of the Interest Rate Cap contracts.) The Interest Rate Cap contracts
are treated as fair-value hedges and it is anticipated that any change in their
fair value will be substantially offset by an opposite change in the fair value
of the financial instruments intended to hedge.
The indices used in these contracts are the Constant Maturity Treasury
("CMT") and the Constant Maturity Swap ("CMS").
The following table sets forth information concerning the interest rate cap
contracts.
Notional Cap Termination
Amount Index Rate Date
------ ----- ---- ----
(dollars in thousands)
$100,000 5-Year CMT 7.50% March 23, 2002
100,000 10-Year CMT 7.25% March 23, 2002
100,000 5-Year CMS 8.85% March 23, 2003
400,000 10-Year CMS 9.35% March 23, 2003
100,000 10-Year CMS 8.85% March 23, 2003
--------
$800,000
========
BankUnited entered into these contracts for the purpose of hedging a
portion of BankUnited's interest rate risk against rising interest rates on
certain borrowings from the Federal Home Loan Bank. As of September 30, 2000,
the 5-Year CMT rate was 5.82%, the 10-Year CMT rate was 5.77%, the 5-Year CMS
rate was 6.75% and the 10-Year CMS rate was 6.88%.
There can be no assurance, however, of the degree to which BankUnited will
be able to match its short-term, interest-earning assets to its short-term,
interest-bearing liabilities. Neither can there be any assurances of
BankUnited's ability to manage related liquidity risks.
68
<PAGE>
Financial Statements and Supplementary Data
BankUnited Financial Corporation
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants....................... 70
Consolidated Statements of Financial Condition as of September 30, 2000
and September 30, 1999 ............................................... 71
Consolidated Statements of Operations for the Years Ended
September 30, 2000, 1999 and 1998. ................................... 72
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 2000, 1999 and 1998. ................................... 73
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2000, 1999 and 1998 .................................... 76
Notes to Consolidated Financial Statements. ............................. 78
69
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
BankUnited Financial Corporation:
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations, of
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of BankUnited Financial Corporation and its subsidiaries
at September 30, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 2000,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Miami, Florida
October 30, 2000
70
<PAGE>
BankUnited Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30,
------------------------
2000 1999
----------- ----------
(dollars in thousands)
<S> <C> <C>
Assets:
Cash ................................................................................................ $ 28,681 $ 26,123
Federal Home Loan Bank overnight deposits ........................................................... 247,640 50,412
Securities purchased under agreements to resell ..................................................... 63,000 150,000
Tax certificates (net of reserves of $986 and $1,168 at September 30, 2000
and 1999, respectively) ......................................................................... 5,699 14,815
Investments held to maturity (market value of approximately $4,985 and $4,984 at September 30, 2000
and 1999, respectively) .......................................................................... 5,062 5,058
Investments available for sale, at market ........................................................... 17,403 20,001
Mortgage-backed securities, held to maturity (market value of approximately $220,484 and $198,785 at
September 30, 2000 and 1999, respectively) ...................................................... 222,592 202,839
Mortgage-backed securities available for sale, at market ............................................ 119,763 144,385
Loans receivable, net ............................................................................... 3,358,137 2,899,231
Mortgage loans held for sale (market value of approximately $313,840 and $403,785 at
September 30, 2000 and 1999, respectively) ...................................................... 312,632 403,635
Other interest-earning assets........................................................................ 62,676 54,927
Office properties and equipment, net ................................................................ 16,158 15,644
Real estate owned.................................................................................... 2,286 3,548
Accrued interest receivable.......................................................................... 26,648 24,768
Mortgage servicing rights............................................................................ 6,227 7,820
Goodwill ............................................................................................ 29,911 31,465
Prepaid expenses and other assets.................................................................... 27,554 23,800
----------- -----------
Total assets ..................................................................................... $ 4,552,069 $ 4,078,471
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits ............................................................................................ $ 2,609,538 2,279,798
Securities sold under agreements to repurchase....................................................... 9,205 31,701
Advances from Federal Home Loan Bank ................................................................ 1,251,426 1,096,447
Senior notes ........................................................................................ 200,000 200,000
Company obligated mandatorily redeemable trust preferred securities of subsidiary trust
holding solely junior subordinated deferrable interest debentures of BankUnited .................. 212,393 218,500
Interest payable (primarily on deposits and advances from Federal Home Loan Bank).................... 12,041 10,205
Advance payments by borrowers for taxes and insurance................................................ 25,651 19,616
Accrued expenses and other liabilities............................................................... 29,228 32,067
----------- -----------
Total liabilities ................................................................................ 4,349,482 3,888,334
----------- -----------
Commitments and contingencies (Notes 8 and 18)
Stockholders' equity:
Preferred stock, Series B and Series 9% , $0.01 par value
Authorized shares-- 10,000,000; issued shares - 992,938 at September 30, 2000 and 1999;
outstanding shares - 991,938 and 992,938 at September 30, 2000 and 1999, respectively............. 10 10
Class A Common Stock, $0.01 par value. Authorized shares -- 30,000,000
Issued shares - 18,093,575 and 18,049,430 at September 30, 2000 and 1999 respectively;
Outstanding shares - 17,760,575 and 17,866,430 at September 30, 2000 and 1999, respectively ..... 180 180
Class B Common Stock, $0.01 par value. Authorized shares -- 3,000,000; issued and outstanding
shares - 446,262 and 458,467 at September 30, 2000 and 1999, respectively ........................ 5 5
Additional paid-in capital .......................................................................... 181,692 181,335
Retained earnings ................................................................................... 29,055 14,081
Treasury stock, 333,000 shares and 183,000 shares of class A Common Stock
at September 30, 2000 and 1999, respectively; 1,000 shares (none in 1999) Preferred 9%, at cost... (2,801) (1,684)
Accumulated other comprehensive loss................................................................. (5,554) (3,790)
----------- -----------
Total stockholders' equity ....................................................................... 202,587 190,137
----------- -----------
Total liabilities and stockholders' equity ....................................................... $ 4,552,069 $ 4,078,471
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
71
<PAGE>
BankUnited Financial Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended September 30,
-----------------------------------------------------
2000 1999 1998
------------------ ------------- ---------------
(dollars in thousands, except earnings per share)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ......................................... $ 260,690 $ 199,704 $ 177,252
Interest on mortgage-backed securities ............................. 24,866 18,493 16,588
Interest on short-term investments ................................. 3,229 7,590 5,013
Interest and dividends on long-term investments and
other interest-earning assets ................................... 6,530 7,763 8,714
------------------ ------------- ---------------
Total interest income ........................................... 295,315 233,550 207,567
------------------ ------------- ---------------
Interest expense:
Interest on deposits ............................................... 126,629 106,655 93,431
Interest on borrowings ............................................. 71,618 59,706 57,160
Preferred dividends of Trust Subsidiary ............................ 20,899 21,154 16,952
------------------ ------------- ---------------
Total interest expense .......................................... 219,146 187,515 167,543
------------------ ------------- ---------------
Net interest income before provision for loan losses ............... 76,169 46,035 40,024
Provision for loan losses ............................................... 4,645 7,939 1,700
------------------ ------------- ---------------
Net interest income after provision for loan losses ................ 71,524 38,096 38,324
------------------ ------------- ---------------
Non-interest income:
Service fees, net .................................................. 4,295 3,785 1,139
Net gain (loss) on sale of loans, mortgage-backed securities
and other assets................................................. 71 (4) 4,435
Other .............................................................. 1,709 1,019 651
------------------ ------------- ---------------
Total non-interest income ....................................... 6,075 4,800 6,225
------------------ ------------- ---------------
Non-interest expenses:
Employee compensation and benefits ................................. 19,819 15,970 10,943
Occupancy and equipment ............................................ 8,332 8,029 4,854
Insurance .......................................................... 1,221 1,683 1,185
Professional fees-legal and accounting ............................. 3,193 3,084 1,891
Telecommunications and data processing ............................. 3,025 2,688 1,997
Loan servicing expense ............................................. 5,699 6,433 5,313
Real estate owned operations ....................................... (307) 152 82
Advertising and promotion expense .................................. 3,289 1,430 1,486
Amortization of goodwill ........................................... 1,565 1,555 1,070
Other operating expenses ........................................... 6,688 7,369 3,362
------------------ ------------- ---------------
Total non-interest expenses ..................................... 52,524 48,393 32,183
------------------ ------------- ---------------
Income (loss) before income taxes, extraordinary items
and preferred stock dividends .................................. 25,075 (5,497) 12,366
Income taxes ............................................................ 10,247 (1,903) 5,009
------------------ ------------- ---------------
Income (loss) before extraordinary items and preferred
stock dividends ................................................. 14,828 (3,594) 7,357
Extraordinary items (net of tax of $586) ................................ 936 - -
------------------ ------------- ---------------
Net income (loss) before preferred stock dividends ................ 15,764 (3,594) 7,357
Preferred stock dividends ............................................... 790 773 897
------------------ ------------- ---------------
Net income (loss) after preferred stock dividends .................. $ 14,974 $ (4,367) $ 6,460
================== ============= ===============
Basic earnings (loss) per share.......................................... $ 0.82 $ (0.24) $ 0.41
================== ============= ===============
Diluted earnings (loss) per share........................................ $ 0.81 $ (0.24) $ 0.39
================== ============= ===============
</TABLE>
See accompanying notes to consolidated financial statements
72
<PAGE>
BankUnited Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended September 30, 2000, 1999 and 1998
----------------------------------------------------------------
Class A Class B
Preferred Stock Common Stock Common Stock
-------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997..................................... 2,175,296 $ 22 9,257,098 $ 92 275,685 $ 3
Comprehensive income:
Net income for the year ended September 30, 1998............. - - - - - -
Payments of dividends on the BankUnited Preferred Stock..... - - - - - -
Other comprehensive income, net of tax........................ - - - - - -
Total comprehensive income.................................. - - - - - -
Issuance of Class A and Class B common stock.................... - - 35,477 - 3,541 -
Conversion of Preferred Stock to Common Class A................. (1,290,061) (13) 1,614,104 16 - -
Issuance of Class B preferred stock............................. 20,762 - - - - -
Preferred stock 9% tender offer................................. (4,300) - - - - -
Underwritten public offering and direct offering of BankUnited's
Class A and Class B Common stock and preferred Stock, net..... 25,000 - 4,761,500 48 30,000 -
Issuance of Stock in connection with acquisitions............... - - 1,948,508 20 - -
Stock options and warrants exercised............................ - - 195,584 2 22,517 -
Common stock issued through preferred stock dividends........... - - 3,942 - - -
---------- ------- ----------- ------- -------- -------
Balance at September 30, 1998..................................... 926,697 9 7,816,213 178 331,743 3
Comprehensive loss:
Net loss for the year ended September 30, 1999................ - - - - - -
Payments of dividends on BankUnited preferred stock........... - - - - - -
Other comprehensive loss, net of tax.......................... - - - - - -
Total comprehensive loss.................................... - - - - - -
Issuance of Series B Preferred Stock............................ 26,241 - - - - -
Issuance of Class A and Class B Common Stock.................... - - 64,176 1 811 -
Conversion of Class B to Class A Common Stock................... - - 97,048 1 (97,048) (1)
Purchase of Class A Common Stock................................ - - (183,000) - - -
Stock options and warrants exercised............................ 40,000 1 58,984 - 222,961 3
Common stock issued preferred stock dividends................... - - 13,009 - - -
---------- ------- ----------- ------- -------- -------
Balance at September 30, 1999..................................... 992,938 10 17,866,430 180 458,467 5
Comprehensive income:
Net income for the year ended September 30, 2000.............. - - - - - -
Payment of dividends on BankUnited's Preferred Stock.......... - - - - - -
Other comprehensive loss, net of tax.......................... - - - - - -
Total comprehensive loss.................................... - - - - - -
Dividend on B Preferred paid in Class A Common................ - - 4,244 -
Conversion of Class B to Class A Common Stock................. - - 20,205 - (20,205) -
Purchase of Class A Common Stock.............................. - - (150,000) - - -
Purchase of Preferred Stock................................... (1,000) - - - - -
Stock options and other awards................................ - - 19,696 - 8,000 -
---------- ------- ----------- ------- -------- -------
Balance at September 30, 2000..................................... 991,938 $ 10 17,760,575 $ 180 446,262 $ 5
========== ======= =========== ======== ======== =======
(continued on next page)
</TABLE>
73
<PAGE>
BankUnited Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Stock-
Paid-in Retained Treasury Income (Loss) holders
Capital Earnings Stock Net of Tax Equity
--------- --------- --------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1997 .......................................... 86,679 $ 11,988 $ -- $ 861 $ 99,645
Comprehensive income:
Net income for the year ended September 30, 1998 .................. -- 7,357 -- -- 7,357
Payments of dividends on the BankUnited Preferred Stock .......... -- (897) -- -- (897)
Other comprehensive income, net of tax ............................. -- -- -- 1,016 1,016
-------
Total comprehensive income ....................................... 7,476
Issuance of Class A and Class B common stock ......................... 237 -- -- -- 237
Conversion of Preferred Stock to Common Class A ...................... (463) -- -- -- (460)
Issuance of Class B preferred stock .................................. 398 -- -- -- 398
Preferred stock 9% tender offer ...................................... (43) -- -- -- (43)
Underwritten public offering and direct offering of BankUnited's
Class A and Class B Common stock and preferred Stock, net .......... 59,055 -- -- -- 59,103
Issuance of Stock in connection with acquisitions .................... 30,416 -- -- -- 30,436
Stock options and warrants exercised ................................. 2,438 -- -- -- 2,440
Common stock issued through preferred stock dividends ................ 60 -- -- -- 60
--------- --------- --------- --------- -------
Balance at September 30, 1998 .......................................... 178,777 18,448 -- 1,877 199,292
Comprehensive loss:
Net loss for the year ended September 30, 1999 ..................... (3,594) -- -- (3,594)
Payments of dividends on BankUnited preferred stock ................ (773) -- -- (773)
Other comprehensive loss, net of tax ............................... -- -- (5,667) (5,667)
-------
Total comprehensive loss ......................................... (10,034)
Issuance of Series B Preferred Stock ................................. 111 -- -- -- 111
Issuance of Class A and Class B Common Stock ......................... 325 -- -- -- 326
Conversion of Class B to Class A Common Stock ........................ -- -- -- -- --
Purchase of Class A Common Stock ..................................... -- -- (1,684) -- (1,684)
Stock options and warrants exercised ................................. 2,007 -- -- -- 2,011
Common stock issued preferred stock dividends ........................ 115 -- -- -- 115
--------- --------- --------- --------- -------
Balance at September 30, 1999 .......................................... 181,335 14,081 (1,684) (3,790) 190,137
Comprehensive income:
Net income for the year ended September 30, 2000 ................... -- 15,764 -- -- 15,764
Payment of dividends on the BankUnited's Preferred Stock ........... -- (790) -- -- (790)
Other comprehensive loss, net of tax ............................... -- -- -- (1,764) (1,764)
-------
Total comprehensive loss ......................................... 13,210
Dividend on B Preferred paid in Class A Common ..................... 33 -- -- -- 33
Conversion of Class B to Class A Common Stock ...................... -- -- -- -- --
Purchase of Class A Common Stock ................................... -- -- (1,110) -- (1,110)
Purchase of Preferred Stock ........................................ -- -- (7) -- (7)
Stock options and other awards ..................................... 324 -- -- -- 324
--------- --------- --------- --------- -------
Balance at September 30, 2000 .......................................... $ 181,692 $ 29,055 $ (2,801) $ (5,554) 202,587
========= ========= ========= ========= =======
(continued on next page)
</TABLE>
74
<PAGE>
BankUnited Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
For the Years Ended September 30, 2000, 1999, and 1998
The beginning balance at September 30, 1997 of each series of BankUnited's
preferred stock was as follows:
Shares Amount
--------- ---------
(dollars in thousands)
Series B .................................. 183,818 $ 2
Series 1993 ............................... 744,870 7
Series 9% ................................. 701,417 8
Series 1996 ............................... 545,191 5
--------- ---------
Total ..................................... 2,175,296 $ 22
========= =========
The ending balance at September 30, 2000 of each series of BankUnited's
preferred stock was as follows:
Shares Amount
--------- ---------
(dollars in thousands)
Series B .................................. 295,821 $ 3
Series 9% ................................. 696,117 7
--------- ---------
Total ..................................... 991,938 $ 10
========= =========
The following table presents additional information concerning BankUnited's
other comprehensive (loss) income:
<TABLE>
<CAPTION>
For the Years Ended September 30,
-----------------------------------
2000 1999 1998
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains arising during the period ......................... $(1,893) $(5,698) $ 1,278
Less reclassification adjustments for:
Amortization of unrealized losses on transferred securities, net of tax ........... 129 31 --
Realized gains on securities sold included in net income .......................... -- -- (262)
------- ------- -------
Total other comprehensive (loss) income, net of tax ................................... $(1,764) $(5,667) $ 1,016
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
75
<PAGE>
BankUnited Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended September 30,
----------------------------------------
2000 1999 1998
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................... $ 15,764 $ (3,594) $ 7,357
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Provision for loan losses ........................................... 4,645 7,939 1,700
Provision (credit) for losses on tax certificate .................... - 1,147 (166)
Depreciation and amortization ....................................... 3,026 3,243 1,633
Amortization of fees, discounts and premiums, net ................... 3,649 24,358 11,449
Amortization of mortgage servicing rights ........................... 1,593 1,471 2,236
Amortization of goodwill ............................................ 1,565 1,555 1,070
Amortization of unrealized losses on transferred mortgage-backed
securities ........................................................ 209 50 -
Amortization of issuance cost of Senior Notes ....................... 629 508 -
Net (gain) loss on sale of loans, mortgage-backed securities
and other assets .................................................. (71) 4 (4,435)
Net gain on sale of real estate owned ............................... (647) (154) (39)
Extraordinary gain on repurchase of trust preferred securities .......... (1,522) - -
Loans originated for sale ............................................... (9,287) (140,399) (312,749)
Proceeds from sale of loans ............................................. 10,210 23,559 177,504
Loans repurchased ....................................................... (5,465) - -
(Increase) decrease in accrued interest receivable .................... (1,880) 8,096 (15,506)
Increase in interest payable on deposits and FHLB advances .............. 1,836 2,380 3,523
Increase (decrease) in accrued taxes .................................... 3,480 (1,224) (9,418)
(Decrease) increase in other liabilities ................................ (5,440) 3,359 20,228
Decrease (increase) in prepaid expenses and other assets ................ (4,300) 16,442 (17,475)
Purchase of mortgage servicing rights .................................. - - (678)
Other, net .............................................................. 1,094 2,121 (2,517)
----------- ----------- -----------
Net cash provided by (used in) operating activities ............... 19,088 (49,139) (136,283)
----------- ----------- -----------
Cash flows from investing activities:
Net increase in loans ................................................... (379,542) (180,260) (1,392,617)
Purchase of investment securities ....................................... (1,000) (3,915) (15,363)
Purchase of mortgage-backed securities .................................. (58,707) (185,786) (118,336)
Purchase of other earning assets ....................................... (50,399) (49,649) (46,325)
Proceeds from repayments of investment securities ....................... 2,250 15,300 22,323
Proceeds from repayments of mortgage-backed securities .................. 62,509 173,653 264,164
Proceeds from repayments of other earning assets ........................ 42,650 46,035 29,423
Proceeds from sale of mortgage-backed securities ........................ - - 15,572
Proceeds from sale of real estate owned ................................. 8,398 4,542 1,225
Purchase of office properties and equipment ............................ (3,418) (4,689) (8,140)
Sale of office properties and equipment ................................. - - 23
Capitalized cost for loan securities ................................... - - (581)
Net decrease in tax certificates ........................................ 9,116 24,045 9,276
Cash equivalents of acquisitions ....................................... - - 26,268
----------- ----------- -----------
Net cash used in investing activities ............................ (368,143) (160,724) (1,213,088)
----------- ----------- -----------
(continued on next page)
</TABLE>
76
<PAGE>
BankUnited Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Years Ended September 30,
----------------------------------------
2000 1999 1998
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits ............................................. 329,740 154,974 774,720
Net increase in Federal Home Loan Bank advances ...................... 154,979 74,981 341,982
Net (decrease) increase in other borrowings .......................... (22,496) 110,553 74,199
Increase in Capitalized costs for senior notes ....................... (300) (2,261) -
Repurchase of trust preferred securities ............................. (4,368) - -
Net proceeds from issuance of trust preferred securities ............. - - 98,913
Net proceeds from issuance of stock .................................. 125 2,011 60,523
Purchase of BankUnited's Class A Common and Preferrred Stock ......... (1,117) (1,684) -
Dividends paid on BankUnited's preferred stock ....................... (757) (658) (837)
Increase in advances from borrowers for taxes and insurance .......... 6,035 6,971 1,398
----------- ----------- -----------
Net cash provided by financing activities ...................... 461,841 344,887 1,350,898
----------- ----------- -----------
Increase in cash and cash equivalents ................................ 112,786 135,024 1,527
Cash and cash equivalents at beginning of year ....................... 226,535 91,511 89,984
----------- ----------- -----------
Cash and cash equivalents at end of year ............................. $ 339,321 $ 226,535 $ 91,511
=========== =========== ===========
Supplemental disclosure of non-cash investing and financing activities:
Interest paid on deposits and borrowings ............................ $ 217,310 $ 185,136 $ 163,561
Income taxes paid .................................................... $ 8,615 $ - $ 3,884
Transfers from loans to real estate owned ............................ $ 7,517 $ 7,519 $ 2,226
Securitization of loans receivable ................................... $ - $ - $ 355,469
Transfer of loans from a mortgage-backed security .................... $ - $ 14,600 $ -
Transfer of loans from held for sale to portfolio .................... $ - $ 73,825 $ -
Transfer of loans from portfolio to held for sale .................... $ - $ 288,319 $ -
Transfer of mortgage-backed securities from available for sale to
held to maturity .................................................. $ - $ 156,370 $ -
Issuance of Class A Common Stock upon conversion of preferred
stock ............................................................. $ - $ - $ 460
Issuance of Class A Common Stock in connection with bank
acquisitions ...................................................... $ - $ - $ 30,436
</TABLE>
See accompanying notes to consolidated financial statements.
77
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of BankUnited Financial Corporation
("BankUnited") and subsidiaries conform to accounting principles generally
accepted in the United States of America and to general practices within the
savings and loan industry. Presented below is a description of BankUnited and
its principal accounting policies.
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of BankUnited
and its subsidiaries, including BankUnited, FSB (the "Bank"). The Bank provides
a full range of banking services to individual and corporate customers through
its branches in South and West Florida. The Bank is subject to the regulations
of certain federal agencies and undergoes periodic examinations by those
regulatory authorities. All significant inter-company transactions and balances
have been eliminated.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated statements of financial condition and operations for the
period.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses,
the effect of prepayments on premiums on purchased loans, the valuation of
mortgage servicing rights, and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. Premiums (discounts)
on purchased loans are amortized (accreted) based, in part, on management's
estimate of future prepayment rates. If actual prepayments exceed these
estimates, premium (discounts) amortization (accretion) is increased (decreased)
through charges to interest income in the period the excess prepayments occur.
In connection with real estate owned, management obtains independent appraisals
for properties.
(b) Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
cash, Federal Home Loan Bank overnight deposits, and securities purchased under
agreement to resell with original maturities of three months or less.
(c) Mortgage-backed Securities and Investments
Mortgage-backed securities and other investments available for sale are
carried at fair value, inclusive of unrealized gains and losses, and net of
discount accretion and premium amortization computed using the level yield
method. Net unrealized gains and losses are included in comprehensive income
(loss) net of applicable deferred income taxes.
Mortgage-backed securities and investments held to maturity are carried at
amortized cost. Mortgage-backed securities and investment securities that
BankUnited has the positive intent and ability to hold to maturity are
designated as held-to-maturity securities.
Gains or losses on sales of mortgage securities and investments are
recognized on the specific identification basis.
Tax certificates are considered investments held to maturity and,
accordingly, are carried at cost less a valuation allowance. Interest is accrued
on tax certificates until payoff or until deemed uncollectible. When deemed
uncollectible, accrued but uncollected interest is reversed.
78
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(1) Summary of Significant Accounting Policies - (Continued)
(d) Allowance for Loan Losses
A provision for losses on loans is charged to operations when, in
management's opinion, the collectibility of the balances is doubtful and the
carrying value is greater than the fair value, net of selling costs, of
collateral dependent loans or the estimated net realizable value of other loans.
The provision is based upon a review of the nature, volume, delinquency status
and inherent risk of the loan portfolio in relation to the allowance for loan
losses.
Management believes that the allowance for loan losses is adequate. While
management uses historical and current available information to recognize losses
on loans, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the allowance for loan
losses. Such agencies may require changes to the allowance based on their
judgments about information available to them at the time of their examination.
BankUnited's non-accrual policy provides that loans are placed on
non-accrual status when they are more than 90 days past due as to either
principal or interest. Loans are returned to accrual status when they become
less than 90 days delinquent.
(e) Loans Receivable
Loans receivable are considered long-term investments and, accordingly, are
carried at historical cost. Loans held for sale are recorded at the lower of
cost or market, determined in the aggregate. In determining cost, deferred loan
origination fees and costs are adjusted to the principal balances of the related
loans.
(f) Loan Origination Fees, Commitment Fees, Loan Premiums and Related Costs
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for estimated prepayments based on BankUnited's historical prepayment
experience. Commitment fees and costs relating to commitments are recognized
over the commitment period on a straight-line basis. If the commitment is
subsequently exercised during the commitment period, the remaining unamortized
commitment fee at the time of exercise is recognized over the life of the loan
as an adjustment of yield.
Premiums (discounts) paid on purchased loans are capitalized and recognized
as an adjustment to interest income over the contractual life of the loans,
adjusted for estimated prepayments based on BankUnited's historical prepayment
experience. If actual prepayments exceed those estimated by BankUnited, premium
(discount) amortization (accretion) is increased (decreased) through charges to
interest income in the period the excess prepayments occur.
(g) Other Interest Earning Assets
Other interest earning assets includes Federal Home Loan Bank of Atlanta
(FHLB) stock and an equity investment in the Community Reinvestment Group. The
fair value is estimated to be the carrying value which is par.
(h) Office Properties and Equipment
Office properties and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is provided using the estimated
service lives of the assets for furniture, fixtures and equipment (7 to 10
years), and computer equipment and software (3 to 5 years), or with leasehold
improvements, the term of the lease or the useful life of the improvement,
whichever is shorter. Repair and maintenance costs are charged to operations as
incurred, and improvements are capitalized.
79
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(1) Summary of Significant Accounting Policies - (Continued)
(i) Accrued Interest Receivable
Recognition of interest on the accrual method is discontinued when interest
or principal payments are greater than 90 days in arrears. At the time a loan is
placed on non-accrual status, previously accrued and uncollected interest is
reversed against interest income in the current period.
(j) Real Estate Owned
Property acquired through foreclosure or deed in lieu of foreclosure is
recorded at the lower of the related principal balance at foreclosure or
estimated fair value less estimated costs to sell the property. Any excess of
the loan balance over the fair value less estimated costs to sell the property
is charged to the allowance for loan losses when the property is classified as
real estate owned. The carrying value is reviewed periodically and, when
necessary, any decline in the value of the real estate is charged to operations.
Significant property improvements which enhance the salability of the property
are capitalized to the extent that the carrying values do not exceed their
estimated realizable values. Maintenance and carrying costs on the property are
charged to operations as incurred.
(k) Impairment of Long-lived Assets
Long-lived assets, assets to be disposed of and certain identifiable
intangibles, such as mortgage servicing rights, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review for recoverability,
BankUnited estimates the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment is recognized.
(l) Goodwill
Goodwill is amortized on a straight-line basis over its estimated
beneficial life of 10 to 25 years. Goodwill is evaluated by management for
impairment on an annual basis based upon undiscounted cash flows of the related
net assets acquired.
(m) Income Taxes
BankUnited and its subsidiaries file consolidated income tax returns.
Deferred income taxes have been provided for elements of income and expense
which are recognized for financial reporting purposes in periods different than
such items are recognized for income tax purposes. BankUnited accounts for
income taxes utilizing the liability method, which applies the enacted statutory
rates in effect at the statement of financial condition date to differences
between the book and tax bases of assets and liabilities. The resulting deferred
tax liabilities and assets are adjusted to reflect changes in tax laws.
(n) Earnings (Loss) per Share
Basic earnings (loss) per common share is computed on the weighted average
number of common shares outstanding during the year. Earnings (loss) per common
share, assuming dilution, assume the maximum dilutive effect of the average
number of shares from stock options and the conversion equivalents of preferred
stocks and certain warrants.
(o) Stock Options
Stock options are granted to employees and directors at the fair market
value of the underlying stock on the date of the grant. The proceeds from the
exercise of options are credited to common stock for the par value of the shares
issued, and the excess, adjusted for any tax benefit, is credited to paid-in
capital.
80
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(1) Summary of Significant Accounting Policies - (Continued)
(p) Impact of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"), which requires
public companies to report certain financial information about significant
revenue-producing segments of the business for which such information is
available and utilized by the chief operating decision maker. Specific
information to be reported for individual operating segments includes a measure
of profit and loss, certain revenue and expense items, and total assets.
BankUnited adopted the provisions of SFAS No. 131 during the first quarter of
fiscal 1999. As the requirements of SFAS No. 131 are disclosure-related, its
implementation has no impact on BankUnited's financial position or results of
operations. As a community-oriented financial institution, substantially all of
BankUnited's operations involve the delivery of loan and deposit products to
customers. Management makes operation decisions and assesses performance based
on an ongoing review of these community banking operations, which constitute
BankUnited's only operating segment for financial reporting purposes.
In October 1998, the FASB issued Statement of Financial Accounting
Standards No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
("SFAS No. 134") which applies to mortgage banking enterprises and other
entities conducting similar operations. SFAS No. 134 requires that securities
retained after a securitization of loans held for sale be accounted for in
accordance with SFAS No. 115, unless the entity has entered into a commitment to
sell the retained securities before or during the securitization process. Such
securities would be classified as trading. SFAS No. 134 is effective for the
first fiscal quarter beginning after December 15, 1998. The adoption of SFAS No.
134 is reflected in the financial statements and has not had, and is not
expected to have, a material impact on BankUnited's financial position or
results of operations.
The FASB has issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS 137 and SFAS 138 (collectively, "SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000; accordingly,
BankUnited adopted SFAS 133 on October 1, 2000.
SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, depending on the type of hedge transaction.
o For fair-value hedge transactions in which the Bank is hedging changes in
the fair value of an asset, liability, or firm commitment, changes in the
fair value of the derivative instrument are generally offset in the income
statement by changes in the hedged item's fair value.
o For cash-flow hedge transactions in which the Bank is hedging the
variability of cash flows related to a variable-rate asset, liability, or a
forecasted transaction, changes in the fair value of the derivative
instrument are reported in other comprehensive income. The gains and losses
on the derivative instrument that are reported in other comprehensive
income are reclassified to earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item.
The ineffective portion of all hedges is recognized in current period
earnings.
Certain other derivative instruments used for risk management purposes do
not meet the hedge accounting criteria and, therefore, do not qualify for hedge
accounting. These derivative instruments are accounted for at fair value with
changes in fair value recorded in the income statement. The Bank does not
utilize other derivative instruments for risk management purposes.
81
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(1) Summary of Significant Accounting Policies - (Continued)
(p) Impact of New Accounting Pronouncements (Continued)
During fiscal 2000, BankUnited purchased interest rate caps with a notional
amount of $800 million. These caps are used to hedge the interest rate risk
relating to the callable options of the FHLB advances (see Note 11).
On October 1, 2000, in conjunction with SFAS No. 133, BankUnited accounted
for the interest rate caps as fair-value hedges and recorded a net of tax,
cumulative effect adjustment of $453,255 (gain) in earnings to recognize at fair
value all derivative instruments that are designated as fair-value hedging
instruments, offset by an adjustment of $453,255 (loss) in earnings to recognize
the difference (attributable to the interest rate risks) between the carrying
values and fair values of related imbedded call options in the FHLB advances.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140 ("Statement No. 140") "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, a replacement of FASB
No. 125" . Statement No. 140 revises the standards for accounting and reporting
of securitizations, other transfers of financial assets and extinguishments of
liabilities. The standards are based on a consistent application of a financial
components approach which focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes financial and servicing
assets it controls and the liabilities it has incurred. Derecognition of
financial assets occurs when control has been surrendered and liabilities are
derecognized when extinguished. Statement No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. Other provisions of Statement No. 140 relating to recognition
and reclassification of collateral and disclosures of securitization
transactions are effective for fiscal years ending after December 15, 2000. The
implementation of this statement is not expected to have a material effect on
BankUnited's consolidated financial position, results of operations or cash
flows.
(q) Financial Statement Reclassifications
Certain prior period amounts have been reclassified to conform to the
September 30, 2000 consolidated financial statements.
82
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(2) Earnings (Loss) per Share
Earnings (loss) per common share is calculated as follows:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-------------------------------------
2000 1999 1998
-------- -------- --------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Basic earnings (loss) per share:
Numerator:
Net income (loss) after preferred stock dividends ..... $ 14,974 $ (4,367) $ 6,460
======== ======== ========
Denominator:
Weighted average common shares outstanding ............ 18,220 18,313 15,693
======== ======== ========
Basic earnings (loss) per share ......................... $ 0.82 $ (0.24) $ 0.41
======== ======== ========
Diluted earnings (loss) per share:
Numerator:
Net income (loss) after preferred stock dividends ..... $ 14,974 $ (4,367) $ 6,460
Plus:
Reduction of preferred stock dividends .............. 163 -- 111
-------- -------- --------
Diluted net income (loss) available to common stock ..... $ 15,137 $ (4,367) $ 6,571
======== ======== ========
Denominator:
Weighted average common shares outstanding ............ 18,220 18,313 15,693
Plus:
Number of common shares from the conversion of
options and warrants(1) ........................... 117 -- 655
Number of common shares from the conversion of
dilutive preferred stock(2) ....................... 443 -- 319
-------- -------- --------
Diluted weighted average shares outstanding ........... 18,780 18,313 16,667
======== ======== ========
Diluted earnings (loss) per share ....................... $ 0.81 $ (0.24) $ 0.39
======== ======== ========
</TABLE>
(1) For the year ended September 30, 1999 there were 345,000, of common stock
equivalent shares of dilutive options that were not included in the
computation of diluted earnings per share because of their antidilutive
effect (none for years ended September 30, 2000 and 1998).
(2) For the years ended September 30, 1999 and 1998 there were 378,000, and
233,000, respectively (none in 2000), of common stock equivalent shares of
convertible preferred stock that were not included in the computation of
diluted earnings per share because of their antidilutive effect.
83
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(3) Acquisitions
On January 23, 1998, BankUnited acquired Consumers Bancorp, Inc.
("Consumers") for approximately $12 million in a combination of cash and stock
and merged its wholly-owned subsidiary, Consumers Savings Bank, which had assets
of $104.4 million and deposits of $88.3 million as of January 23, 1998, into the
Bank. The acquisition was accounted for as a purchase and resulted in goodwill
of approximately $5.6 million. This acquisition did not have a material impact
on the financial condition or results of operations of BankUnited.
On June 19, 1998, BankUnited acquired Central Bank ("Central"), for
1,386,000 shares of BankUnited's Class A Common Stock, and merged Central, which
had assets of $93.9 million and deposits of $65.9 million as of June 19, 1998
into the Bank. The acquisition was accounted for as a purchase and resulted in
goodwill of approximately $12.8 million. This acquisition did not have a
material impact on the financial condition or results of operations of
BankUnited.
(4) Tax Certificates
Tax certificates are certificates representing delinquent real estate taxes
owed to the respective counties. A substantial percentage of tax certificates
are for properties located in southeast Florida. BankUnited's policy was to
purchase tax certificates only for properties located in Florida. As a result of
the review of interest earning assets in the second quarter of fiscal 1999, the
decision was made to discontinue purchasing tax certificates.
The net carrying value of tax certificates was $5.7 million and $14.8
million at September 30, 2000 and 1999, respectively. Included in these amounts
at September 30, 2000 and 1999 were $4.1 million and $2.6 million, respectively,
of tax certificates for which BankUnited had made application for tax deeds.
BankUnited maintains loss reserves for tax certificates that were $1.0 million
and $1.2 million at September 30, 2000 and 1999, respectively.
(5) Securities Purchased under Agreements to Resell
Interest income from securities purchased under agreements to resell
aggregated approximately $1.9 million, $6.1 million and $2.5 million for the
years ended September 30, 2000, 1999 and 1998, respectively.
The following sets forth information concerning BankUnited's securities
purchased under agreements to resell for the periods indicated:
<TABLE>
<CAPTION>
As of and for
the Years Ended September 30,
--------------------------------------
2000 1999 1998
--------- --------- --------
(dollars in thousands)
<S> <C> <C> <C>
Maximum amount of outstanding agreements at any month end
during the period ............................................. $113,000 $370,000 $ 95,032
Average amount outstanding during the period .................... $ 29,426 $122,879 $ 44,009
Weighted average interest rate for the period ................... 6.53% 5.08% 5.56%
Maturity ........................................................ less than 30 days
</TABLE>
84
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(6) Investments and Mortgage-backed Securities
Investments
Presented below is an analysis of the carrying values and approximate
market values of investments held to maturity.
<TABLE>
<CAPTION>
September 30, 2000
------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
----- ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government agency securities ...... $5,001 $ - $ (77) $4,924
State of Israel Bonds ................. 61 - - 61
------ ----- ------ ------
Total .................................. $5,062 $ - $ (77) $4,985
====== ===== ====== ======
<CAPTION>
September 30, 1999
------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
----- ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government agency securities ...... $4,997 $ - $ (74) $4,923
State of Israel Bonds .................. 61 - - 61
------ ----- ------ ------
Total .................................. $5,058 $ - $ (74) $4,984
====== ===== ====== ======
</TABLE>
All investments held to maturity at September 30, 2000 and 1999 had
maturities between one and five years.
Presented below is an analysis of the investments designated as available
for sale.
<TABLE>
<CAPTION>
September 30, 2000
---------------------------------------------
Gross Gross
Historical Unrealized Unrealized Carrying
Cost Gains Losses Value
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. government agency securities .................. $ 350 $ - $ (10) $ 340
Equity securities .................................. 2,905 - (115) 2,790
Trust preferred securities of other issuers ........ 17,313 - (3,040) 14,273
------- ------- ------- -------
Total .............................................. $20,568 $ - $(3,165) $17,403
======= ======= ======= =======
</TABLE>
85
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(6) Investments and Mortgage-backed Securities (Continued)
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------
Gross Gross
Historical Unrealized Unrealized Carrying
Cost Gains Losses Value
------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury notes ................................ $ 503 $ 1 $ - $ 504
U.S. government agency securities .................. 2,104 15 (8) 2,111
Equity securities .................................. 2,905 - (199) 2,706
Trust preferred securities of other issuers ........ 16,327 - (1,647) 14,680
------- ------- ------- -------
Total ......................................... $21,839 $ 16 $(1,854) $20,001
======= ======= ======= =======
</TABLE>
The carrying value and market value of mortgage-backed securities held to
maturity are summarized as follows:
<TABLE>
<CAPTION>
September 30, 2000
---------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities ........ $ 85,201 $ 1,006 $ (88) $ 86,119
FNMA mortgage-backed securities ........ 1,741 - (16) 1,725
FHLMC mortgage-backed securities ....... 66,947 - (1,099) 65,848
Collateralized mortgage obligations .... 51,772 - (2,484) 49,288
Mortgage pass-through certificates ..... 16,931 594 (21) 17,504
-------- -------- -------- --------
Total ............................. $222,592 $ 1,600 $ (3,708) $220,484
======== ======== ======== ========
<CAPTION>
September 30, 1999
---------------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Market
Value Gains Losses Value
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities ........ $ 39,244 $ 59 $ (168) $ 39,135
FNMA mortgage-backed securities ........ 1,915 - (23) 1,892
FHLMC mortgage-backed securities ....... 72,566 2 (1,202) 71,366
Collateralized mortgage obligations .... 63,189 - (2,740) 60,449
Mortgage pass-through certificates ..... 25,925 45 (27) 25,943
-------- -------- -------- --------
Total .............................. $202,839 $ 106 $ (4,160) $198,785
======== ======== ======== ========
</TABLE>
86
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(6) Investments and Mortgage-backed Securities (Continued)
The carrying value and historical cost of mortgage-backed securities available
for sale are summarized as follows:
<TABLE>
<CAPTION>
September 30, 2000
--------------------------------------------------
Gross Gross
Historical Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities ........ $ 27,486 $ 167 $ (101) $ 27,552
FNMA mortgage-backed securities ........ 4,539 24 (110) 4,453
FHLMC mortgage-backed securities ....... 12,835 8 (167) 12,676
Collateralized mortgage obligations .... 75,679 60 (3,284) 72,455
Mortgage pass-through certificates ..... 2,592 41 (6) 2,627
-------- -------- -------- --------
Total .............................. $123,131 $ 300 $ (3,668) $119,763
======== ======== ======== ========
<CAPTION>
September 30, 1999
--------------------------------------------------
Gross Gross
Historical Unrealized Unrealized Carrying
Cost Gains Losses Value
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
GNMA mortgage-backed securities ........ $ 32,543 $ 179 $ (391) $ 32,331
FNMA mortgage-backed securities ........ 5,396 40 (116) 5,320
FHLMC mortgage-backed securities ....... 16,949 11 (110) 16,850
Collateralized mortgage obligations .... 88,268 92 (1,552) 86,808
Mortgage pass-through certificates ..... 3,072 4 -- 3,076
-------- -------- -------- --------
Total .............................. $146,228 $ 326 $ (2,169) $144,385
======== ======== ======== ========
</TABLE>
The mortgage-backed securities have contractual maturities which range from
the years 2001 to 2031, however, expected maturities will differ from
contractual maturities as borrowers have the right to prepay obligations.
During the fourth quarter of fiscal 1999, BankUnited transferred $158.9
million in mortgage-backed securities, with an aggregate market value of $156.4
million at the date of transfer, from available-for-sale to held-to-maturity.
The resulting $2.5 million unrealized loss was recorded as a discount and as a
component of other comprehensive income (loss) to be amortized over the life of
the related security in a manner consistent with premiums and discounts.
There were no sales of mortgage-backed securities and collateralized
mortgage obligations during the years ended September 30, 2000 and 1999. Gross
proceeds on sales of mortgage-backed securities and collateralized mortgage
obligations were $15.6 million for the year ended September 30, 1998. Gross
realized gains were $423,000 on sales of mortgage-backed securities and
collateralized mortgage obligations during the year ended September 30, 1998.
At September 30, 2000, GNMA, FNMA and FHLMC mortgage-backed securities with
market values of approximately $147 million were pledged as collateral for
public funds on deposit. At September 30, 2000, investment and mortgage-backed
securities with an aggregate carrying value of approximately $11.1 million were
pledged as collateral for repurchase agreements.
87
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(7) Loans Receivable
Loans receivable (including loans held for sale) consist of the following:
<TABLE>
<CAPTION>
As of September 30,
------------------------------------------------------------
2000 1999
----------------------------- ---------------------------
Percent Percent
of of
Amount Total Amount Total
------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One-to-four family .................. $ 3,218,868 87.8% $ 3,010,427 91.1%
Multi-family ........................ 70,856 1.9 30,057 0.9
Commercial real estate .............. 155,569 4.2 141,090 4.3
Construction ........................ 38,786 1.1 15,425 0.5
Land ................................ 34,489 0.9 23,659 0.7
----------- ----- ----------- ------
Total mortgage loans ............. 3,518,568 95.9 3,220,658 97.5
----------- ----- ----------- ------
Other loans:
Commercial .......................... 83,023 2.3 48,173 1.5
Consumer ............................ 66,480 1.8 33,878 1.0
----------- ----- ----------- ------
Total other loans ................ 149,503 4.1 82,051 2.5
----------- ----- ----------- ------
Total loans ................ 3,668,071 100.0 3,302,709 100.0
Unearned discounts, premiums and
deferred loan fees, net ............. 15,730 0.4 12,264 0.4
Allowance for loan losses .............. (13,032) (0.4) (12,107) (0.4)
----------- ----- ----------- ------
Total loan portfolio ................... $ 3,670,769 100.0% $ 3,302,866 100.00%
=========== ===== =========== ======
</TABLE>
Of the total loan portfolio of $3.7 billion at September 30, 2000,
approximately $1.7 billion, or 45.7%, represented loans secured by properties in
Florida and $ 0.4 billion, or 11%, represented loans secured by properties in
California. No other state represented more than 10% of BankUnited's loan
portfolio.
At September 30, 2000, the Bank had pledged approximately $2.0 billion of
mortgage loans as collateral for advances from the Federal Home Loan Bank of
Atlanta.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------
2000 1999 1998
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of the period ..... $ 12,107 $ 6,128 $ 3,693
Provision ........................... 4,645 7,939 1,700
Allowance from acquisitions ......... - - 1,262
Loan charge-off ..................... (3,859) (2,048) (599)
Recoveries .......................... 139 88 72
-------- -------- --------
Balance at end of period ............ $ 13,032 $ 12,107 $ 6,128
======== ======== ========
</TABLE>
88
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(7) Loans Receivable - (Continued)
As of September 30, 2000, and 1999 BankUnited had non-accrual loans of
$19.8 million, and $21.4 million, respectively. For the years ended September
30, 2000, 1999 and 1998 the average amounts of non-accrual loans were $18.4
million, $20.7 million, and $12.1 million, respectively. Gross interest income
that would have been recorded on non-accrual loans had they been current in
accordance with original terms was $1.1 million, $1.3 million, and $1.0 million,
for the years ended September 30, 2000, 1999, and 1998 respectively. The amount
of interest income on such non-accrual loans included in operations for the
years ended September 30, 2000, 1999 and 1998 was $0.7 million, $0.5 million,
and $0.4 million, respectively. No income is recognized on loans while in
non-accrual status.
(8) Office Properties and Equipment
Office properties and equipment are summarized as follows:
As of September 30,
-----------------------
2000 1999
-------- --------
(dollars in thousands)
Office buildings .......................... $ 2,642 $ 2,605
Leasehold improvements .................... 9,025 7,916
Furniture, fixtures and equipment ......... 9,431 8,415
Computer equipment and software ........... 4,947 3,727
-------- --------
Total ........................ 26,045 22,663
Less: accumulated depreciation ............ (9,887) (7,019)
-------- --------
Office properties and equipment, net ...... $ 16,158 $ 15,644
======== ========
Depreciation expense was $3.0 million, $2.4 million, and $1.6 million, for
the years ended September 30, 2000, 1999 and 1998, respectively.
BankUnited has entered into non-cancelable leases with approximate minimum
future rentals as follows:
Years Ending September 30, Amount
-------------------------- ------
(dollars in thousands)
2001 ..................................... $ 4,464
2002 ..................................... 4,115
2003 ..................................... 3,297
2004 ..................................... 2,828
2005 ..................................... 2,072
Thereafter ............................... 9,814
--------
Total ................................. $ 26,590
--------
Rent expense for the years ended September 30, 2000, 1999, and 1998 was
$3.5 million, $3.2 million, and $2.2 million, respectively, net of sublease
income of approximately $22,300, $0.3 million and $0.1 million, respectively.
89
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(9) Deposits
The following table sets forth information concerning BankUnited's deposits
by account type and the weighted average nominal rates at which interest is paid
thereon as of the dates indicated:
<TABLE>
<CAPTION>
As of September 30,
---------------------------------------------------
2000 1999
---------------------- ------------------------
Amount Rate Amount Rate
---------------------- ------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Passbook accounts .................................. $ 324,894 4.86% $ 379,503 4.57%
---------- -----------
Checking:
Non-interest-bearing ............................. 72,253 -- 50,075 --
NOW accounts ..................................... 116,032 2.73% 125,617 2.75%
Insured money market ............................. 90,531 4.79% 92,785 4.04%
---------- -----------
Total checking accounts ........................ 278,816 268,477
---------- -----------
Total passbook and checking accounts ........... 603,710 647,980
---------- -----------
Certificates of deposit:
Less than 3-month certificates of deposit ........ 1,128 3.83% 2,260 4.40%
3-5-month certificates of deposit ................ 19,547 5.66% 28,943 4.63%
6-11-month certificates of deposit ............... 410,480 6.34% 411,774 5.03%
12-month or more certificates of deposit ......... 1,293,373 6.23% 1,010,791 5.41%
Public funds ..................................... 281,300 6.02% 178,050 4.98%
---------- -----------
Total certificates of deposit .................. 2,005,828 1,631,818
---------- -----------
Total ........................................ $2,609,538 $ 2,279,798
========== ===========
Weighted average rate ...................... 5.67% 4.83%
</TABLE>
Deposit accounts with balances of $100,000 or more totaled approximately
$821.3 million and $597.8 million at September 30, 2000 and 1999, respectively.
Included in balances of $100,000 or more are $281.3 million in public funds at
September 30, 2000 and $178.1 million in public funds at September 30, 1999.
90
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(9) Deposits - (Continued)
Interest expense on deposits for the years ended September 30, 2000, 1999,
and 1998 was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
NOW and insured money market deposits .............. $ 6,777 $ 7,820 $ 5,083
Passbook accounts .................................. 16,825 16,010 8,983
Certificates of deposit ............................ 103,027 82,825 79,365
-------- -------- --------
$126,629 $106,655 $ 93,431
======== ======== ========
</TABLE>
Early withdrawal penalties on deposits are recognized as a reduction of
interest on deposits. For the years ended September 30, 2000, 1999 and 1998,
early withdrawal penalties totaled $336,000, $221,000 and $217,000,
respectively.
The amounts and scheduled maturities of certificate accounts at September
30, 2000 are as follows:
Year Ending September 30, Amount
------------------------- ------
(dollars in thousands)
2001 ................................. $ 1,488,700
2002 ................................. 374,168
2003 ................................. 104,669
2004 ................................. 26,650
2005 ................................. 11,641
Thereafter ........................... --
-----------
Total ................................ $ 2,005,828
===========
91
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(10) Securities Sold under Agreements to Repurchase
Interest expense on securities sold under an agreement to repurchase
aggregated $0.9 million, $1.4 million and $5.5 million for the years ended
September 30, 2000, 1999 and 1998, respectively.
The following sets forth information concerning repurchase agreements for
the periods indicated:
<TABLE>
<CAPTION>
As of and for the Years Ended
September 30,
---------------------------------------
2000 1999 1998
-------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Maximum amount of outstanding agreements at any month
end during the period ....................................... $ 30,806 $ 96,862 $192,610
Average amount outstanding during the period .................. $ 10,621 $ 25,311 $ 97,292
Weighted average interest rate for the period ................. 8.23% 5.46% 5.77%
</TABLE>
The $9.2 million of repurchase agreements outstanding at September 30, 2000
mature in October 2000. At September 30, 2000, 1999 and 1998, BankUnited had
$11.1 million, $34.4 million and $126.3 million, respectively, of investment and
mortgage-backed securities pledged under repurchase agreements.
(11) Advances from Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta incur interest and are
repayable as follows:
<TABLE>
<CAPTION>
September 30,
Repayable During Year --------------------------
Ending September 30, Interest Rate 2000 1999
-------------------- -------------------------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
2000 .............. 5.13% -- 5.85% $ -- $ 330,000
2001 .............. 5.54% -- 6.94% 365,000 140,000
2002 .............. 5.43% -- 7.33% 25,000 125,000
2003 .............. 4.70% -- 7.24% 75,000 125,000
2004 .............. 6.47% -- 7.17% 55,000 25,000
2005 .............. 7.43% 100,000 --
2006 .............. 6.65% 1,426 1,447
2008(4) ........... 4.75% -- 5.50% 25,000 225,000
2009(1) ........... 4.43% -- 5.48% 125,000 125,000
2010(2)(3) ........ 5.44% -- 6.94% 480,000 --
---------- ----------
Total ............................................. $1,251,426 $1,096,447
========== ==========
</TABLE>
------------------
(1) Advances for $75 million are callable by the FHLB in 2001 and $50 million
are callable by FHLB in 2002.
(2) Advances for $75 million are callable by the FHLB in 2001 and $155 million
are callable by FHLB in 2002.
(3) Advances for $250 million are callable by FHLB in 2001.
(4) Advances for $25 million are callable by the FHLB in 2003.
92
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(11) Advances from Federal Home Loan Bank (Continued)
The terms of a security agreement with the FHLB of Atlanta include a
specific assignment of collateral that requires the maintenance of qualifying
first mortgage loans as pledged collateral with unpaid principal amounts at
least equal to 100% of the FHLB advances, when discounted at 85% of the unpaid
principal balance. The FHLB of Atlanta stock, which is recorded at cost, is also
pledged as collateral for these advances.
(12) Senior Notes
During November 1998, the Bank established a program to issue up to $500
million aggregate principal amount of its Senior Notes backed by an irrevocable
standby letter of credit of the FHLB of Atlanta. These notes may have either a
fixed or floating rate of interest determined at the time of issuance and will
mature no sooner than 9 months and no more than 10 years from the date of issue.
On February 2, 1999, the Bank issued and sold $200 million of Senior Notes which
mature five years from the date of issuance and bear interest at an annual rate
of 5.40%, payable semiannually.
(13) Company Obligated Mandatorily Redeemable Trust Preferred Securities of
Subsidiary Trust Holding Solely Junior Subordinated Deferrable Interest
Debentures of BankUnited
BankUnited Capital, BankUnited Capital II and BankUnited Capital III are
wholly-owned trust subsidiaries of BankUnited which were created under Delaware
law for the purpose of issuing Trust Preferred Securities and investing the
proceeds from the sale thereof in Junior Subordinated Deferrable Interest
Debentures issued by BankUnited (the "Junior Subordinated Debentures").
BankUnited Capital, BankUnited Capital II and BankUnited Capital III issued
trust preferred securities in the aggregate amounts of $70.0 million, $46.0
million and $102.5 million, respectively, and issued common securities in the
aggregate amounts of $2.8 million, $1.8 million and $4.1 million, respectively.
All of the proceeds of the trust preferred securities and the common securities
were invested in the Junior Subordinated Debentures. The sole assets of each
trust are the Junior Subordinated Debentures.
BankUnited Capital holds $70.6 million of Junior Subordinated Debentures
which pay a preferential cumulative cash distribution at an annual rate of
10.25% and mature December 31, 2026. BankUnited Capital II holds $47.6 million
of Junior Subordinated Debentures which pay a preferential cumulative cash
distribution at an annual rate of 9.60% and mature on June 30, 2027. BankUnited
Capital III holds $102.9 million of Junior Subordinated Debentures which pay a
preferential cumulative cash distribution at an annual rate of 9% and mature
March 31, 2028. In conjunction with the purchase and extinguishments of Trust
Preferred Securities, Junior Subordinated Debentures totaling $6.1 million were
also extinguished.
The Trust Preferred Securities pay preferential cumulative cash
distributions at the same annual rate as the Junior Subordinated Debentures held
by the trust subsidiary issuer. Considered together, back-up undertakings made
by BankUnited with respect to the Trust Preferred Securities constitute a full
and unconditional guarantee by BankUnited of the obligations of the Trust
Preferred Securities.
In November 1999, the Board of Directors of BankUnited authorized the
purchase, from time to time, in the open market, or otherwise, of up to 300,000
shares of trust preferred securities issued by its trust subsidiaries (the
"Trust Preferred Securities").
BankUnited purchased 158,499 shares of Trust Preferred Securities at a cost
of $4.4 million during the year ended September 30, 2000. As a result of the
early extinguishment of the Trust Preferred Securities which were acquired, the
purchases resulted in extraordinary gains of $0.9 million, net of $0.6 million
in taxes, for the year ended September 30, 2000.
93
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(14) Regulatory Capital
Bank's required actual and excess regulatory levels as of September 30,
2000 and the 1999 are as follows:
<TABLE>
<CAPTION>
Regulatory Capital
--------------------------------------------------------------------------------------
Required Actual Excess
-------------------------- -------------------------- --------------------------
2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Core capital ......... $ 134,512 $ 119,919 $ 335,761 $ 314,355 $ 201,249 $ 194,436
3.00% 3.00% 7.49% 7.90% 4.49% 4.90%
Risk based capital ... $ 187,794 $ 167,362 $ 348,283 $ 325,079 $ 160,489 $ 157,717
8.00% 8.00% 14.84% 15.50% 6.84% 7.50%
</TABLE>
Under the Office of Thrift Supervision (OTS) regulations adopted to
implement the "prompt corrective action" provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDICIA"), a "well
capitalized" institution must have a risk-based capital ratio of 10%, a core
capital ratio of 5% and a Tier 1 risk-based capital ratio of 6%. (The "Tier 1
risk-based capital" ratio is the ratio of core capital to risk-weighted assets.)
The Bank is a well capitalized institution under the definitions as adopted.
Regulatory capital and net income amounts as of and for the years ended
September 30, 2000, 1999 and 1998 did not differ from regulatory capital and net
income amounts reported to the OTS.
Payment of dividends by the Bank is limited by federal regulations, which
provide for certain levels of permissible dividend payments depending on the
Bank's regulatory capital and other relevant factors.
94
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(15) Stockholders' Equity
BankUnited has the following capital structure:
Preferred Stock - Issued in series with rights and preferences to be designated
by the Board of Directors. As of September 30, 2000, 10,000,000 shares of
Preferred Stock were authorized, of which 7,152,883 shares were not
designated to a particular series.
Noncumulative Convertible Preferred Stock, Series B:
Authorized shares -1,000,000 shares as of September 30, 2000 and September
30, 1999.
Issued and outstanding shares - 295,821 as of September 30, 2000 and 1999.
Dividends - noncumulative cash dividends payable quarterly in cash or
shares of Class A Common Stock at the option of the holder, at the
fixed annual rate of $0.55 per share beginning October 1, 1997 and
$0.7375 per share prior to that date.
Preference on liquidation--voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $7.375 per
share.
Redemption - Not redeemable until October 1, 2007 or later unless earlier
redemption is approved by the holders of at least 50 percent of the
Series B Preferred shares.
Voting rights - two-and-one-half votes per share.
Convertibility - convertible into 1.4959 shares (adjusted for all stock
dividends) of Class B Common Stock for each share of Noncumulative
Convertible Preferred Stock, Series B, surrendered for conversion,
subject to adjustment on the occurrence of certain events.
Issuances - During the fiscal year ended September 30, 2000 no Series B
Preferred Stock was issued. During fiscal year 1999, BankUnited awarded
26,241 shares under the 1996 Incentive and Stock Award plan and 40,000
shares were issued pursuant to the exercise of options.
9% Noncumulative Perpetual Preferred Stock:
Authorized shares - 1,847,117 shares as of September 30, 2000 and 1999.
Issued - 697,117 as of September 30, 2000 and 1999 respectively.
Outstanding - 696,117 as of September 30, 2000 and 697,117 as of September
30, 1999.
Dividends - non-cumulative cash dividends payable quarterly at the fixed
annual rate of $0.90 per share.
Preference on liquidation-voluntary liquidation at the applicable
redemption price per share and involuntary liquidation at $10.00 per
share.
Redemption - at the option of BankUnited at a redemption price of $10.00
per share.
Voting rights - nonvoting, except under certain circumstances.
95
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(15) Stockholders' Equity (Continued)
Issuances - For fiscal year ended September 30, 2000 BankUnited acquired
1,000 shares of its 9% Noncumulative Perpetual Preferred Stock at a
price of $7.25 per share recorded at cost as Treasury Stock. There were
no issuance of shares during fiscal years ended September 30, 2000 and
1999.
Class A Common Stock - Issued in series with rights and preferences to be
designated by the Board of Directors. As of September 30, 2000 and 1999,
30,000,000 shares of Class A Common Stock were authorized, of which all
shares were designated to a series.
Series I Class A Common Stock:
Authorized shares - 30,000,000 at September 30, 2000 and 1999.
Issued - 18,093,575 shares as of September 30, 2000 and 18,049,430 shares
as of September 30, 1999.
Outstanding - 17,760,575 shares as of September 30, 2000 and 17,866,430
shares as of September 30, 1999.
Dividends - as declared by the Board in the case of a dividend on the Class
A Common Stock alone or not less than 110% of the amount per share of
any dividend declared on the Class B Common Stock.
Voting rights-one tenth of one vote per share.
Issuances - During the fiscal year ended September 30, 2000, BankUnited
issued 19,696 shares with the exercise of options, awards, and
issuances to directors and officers of BankUnited, 4,244 shares in
dividends on BankUnited's Series B Preferred Stock paid in Class A
Common and 20,205 shares upon the conversion of Class B Common Stock
into Class A Common Stock. Additionally, BankUnited acquired 150,000
shares of its Class A Common Stock at a price of $7.40 per share
recorded at cost as Treasury Stock.
During the fiscal year ended September 30, 1999, BankUnited issued
58,984 shares with the exercise of options and warrants, 64,176 shares
in awards and issuances to directors, officers and employees of
BankUnited, 13,009 shares in dividends on BankUnited's Series B
Preferred Stock and 97,048 shares upon the conversion of Class B Common
Stock into Class A Common Stock.
Class B Common Stock:
Authorized shares - 3,000,000.
Issued and outstanding - 446,262 shares as of September 30, 2000 and
458,467 shares as of September 30, 1999.
Dividends - as declared by the Board of Directors.
Voting rights - one vote per share.
Convertibility - convertible into one share of Class A Common Stock for
each share of Class B Common Stock surrendered for conversion, subject
to adjustment on the occurrence of certain events.
Issuances - During the fiscal year ended September 30, 2000 BankUnited
issued 8,000 shares in connection with the exercise of stock options
and 20,205 shares of Class B Common Stock were converted into Class A
Common Stock.
96
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(15) Stockholders' Equity (Continued)
During the fiscal year ended September 1999, BankUnited issued 222,961
shares in connection with the exercise of stock options, awarded 811
shares to directors and officers of BankUnited and 97,048 shares of
Class B Common Stock were converted into Class A Common Stock.
(16) Stock Bonus Plan, Option Agreements and Other Benefit Plans
BankUnited maintains the 1992 Stock Bonus Plan whereby it is authorized to
issue up to 125,000 shares of Class A and Class B Common Stock to provide
long-term incentives and rewards to officers, directors and employees of
BankUnited. As of September 30, 2000, 71,942 shares of Class A Common Stock and
54,779 shares of Class B Common Stock had been issued under the 1992 Stock Bonus
Plan. As of September 30, 2000, there were 21,637 shares available for grant
under the 1992 Stock Bonus Plan, due to stock awards which had been forfeited by
officers and employees who terminated service with BankUnited prior to full
vesting of such awards.
BankUnited also maintains a non-statutory stock option plan under which
options for up to 825,000 shares of Class A and Class B Common Stock have been
granted. As of September 30, 2000, 15,952 shares were available for the grant of
options under this plan due to stock awards, which had been forfeited by
officers and employees who terminated service with BankUnited prior to full
vesting of such awards and 304,717 options had been exercised.
BankUnited also maintains the 1994 Incentive Stock Option Plan ("1994
plan") under which options for up to 250,000 shares of Class A and Class B
Common Stock have been granted. As of September 30, 2000, 92,819 shares were
available for the grant of options under this plan, due to options which have
been forfeited by officers and employees who terminated service with BankUnited
prior to full vesting of these options, and options for 46,110 shares had been
exercised.
In October 1994, BankUnited's Board of Directors approved several
non-qualified stock option agreements (the Agreements) under which options to
purchase shares of Class B Common Stock were granted at the fair market price of
the Class B Common Stock on the date of the grant. The terms of the agreements,
which originally expired on October 23, 1994, was extended pursuant to
Stockholders' approval to October 23, 1999. As of September 30, 1999, all
options granted pursuant to the Agreements had been exercised at the exercise
price of $4.64 per share.
BankUnited maintains the 1996 Incentive Compensation and Stock Award Plan
("1996 plan"). Under the 1996 plan, the Compensation Committee of the Board of
Directors may grant options to purchase, or may issue in connection with stock
awards, stock bonuses and restricted stock, up to (as amended in January 2000)
2,300,000 shares of Class A and Class B Common Stock and up to 650,000 shares of
Series B Preferred. Since inception to September 30, 2000, options to purchase
1,719,669 shares of Class A Common Stock, 312,500 shares of Class B Common Stock
and 497,000 shares of Series B Preferred Stock have been granted. Officers and
employees who terminated service with BankUnited prior to full vesting of these
options have forfeited options for 535,311 shares of Class A Common Stock.
Options for 52,685 shares of Class A common Stock and options for 40,000 B
Preferred Stock have been exercised.
In addition, under the 1996 Special Awards Program - 92,294 shares of
Common A Stock, 3,000 shares of Common B Stock and 47,003 of Series B Preferred
Stock have been issued pursuant to other awards under the Plan of which 14,830
shares of class A Common Stock had been forfeited by officers and employees who
terminated service with BankUnited prior to the full vesting of these awards. As
of September 30, 2000, 722,678 shares of Class A and Class B Common Stock and
105,997 shares of Series B Preferred Stock were available for grant under this
plan.
Options granted under BankUnited's stock option plans expire ten years
after the date of grant unless extended by the Board of Directors, and are
exercisable at the fair market value of the stock on the date of grant or at a
97
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(16) Stock Bonus Plan, Option Agreements and Other Benefit Plans - (Continued)
subsequently adjusted exercise price. The vesting and exercisability of options
granted under the 1994 Incentive Stock Option Plan and the 1996 Incentive
Compensation and Stock Award Plan is determined by the Compensation Committee of
BankUnited's Board of Directors at the time of the grant, and an option may be
immediately vested and exercisable or become so over a period of years. If an
option vests over a period of years, it is subject to forfeiture as to any
portion which is not exercisable upon termination of employment.
The following table presents additional data concerning BankUnited's outstanding
stock options:
<TABLE>
<CAPTION>
Number Option Price Aggregate
of Shares per Share Option Price
--------- --------------------- ------------
<S> <C> <C> <C> <C>
Options outstanding, September 30, 1997 ................. 1,587,525 $ 3.00 - $ 10.98 $ 10,759,609
Options granted ......................................... 665,705 9.63 - 21.07 10,726,793
Options exercised ....................................... (120,991) 3.00 - 13.25 (646,547)
Options expired ......................................... (106,924) 5.73 - 13.24 (1,069,860)
Reduction of option price(1) ............................ -- 9.30 - 13.91 (2,999,259)
--------- -------------------- ------------
Options outstanding, September 30, 1998 ................. 2,025,315 3.11 - 13.91 16,770,736
Options granted ......................................... 796,534 6.56 - 13.18 6,872,153
Options exercised ....................................... (321,959) 3.11 - 10.85 (1,808,462)
Options expired ......................................... (209,365) 5.73 - 8.00 (1,517,153)
Reduction of option price(2) ............................ -- 7.28 - 13.91 (2,404,174)
--------- -------------------- ------------
Options outstanding, September 30, 1999 ................. 2,290,525 3.11 - 13.18 17,913,100
Options granted ......................................... 668,610 6.13 - 8.63 5,613,991
Options exercised ....................................... (26,020) 3.75 - 6.60 (127,394)
Options expired ......................................... (338,717) 3.32 - 11.00 (2,611,064)
--------- -------------------- ------------
Options outstanding, September 30, 2000(3) .............. 2,594,398 $ 3.11 - $ 13.18 $ 20,788,633
========= ====== ========= ============
</TABLE>
(1) On September 3, 1998, BankUnited repriced options to purchase Class A Common
Stock, Class B Common Stock and Series B Preferred Stock which had exercise
prices which exceeded the fair market value of the underlying stock on that
date. As a result of this repricing the exercise price of options to purchase
302,850 shares of Class A Common Stock and 77,500 shares of Class B Common Stock
was reduced to $9.298 per share, and the exercise price of options to purchase
315,000 shares of Series B Preferred Stock was reduced to $13.909 per share.
(2) On October 14, 1998, BankUnited repriced options to purchase Class A Common
Stock, Class B Common Stock and Series B Preferred Stock which had exercise
prices which exceeded the fair market value of the underlying stock on that
date. As a result of this repricing the exercise price of options to purchase
456,368 shares of Class A Common Stock and 595,800 shares of Class B Common
Stock was reduced to $7.25 per share, and the exercise price of options to
purchase 315,000 shares of Series B Preferred Stock was reduced to $10.8452 per
share.
(3) As of September 30, 2000, the 2.6 million options outstanding had a
remaining contractual life of approximately 7.1 years. Additionally,
approximately 1.6 million of these options were exercisable at September 30,
2000, at exercise prices ranging from $3.11 to $13.18 with a weighted average
exercise price of $7.75.
BankUnited has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" and as permitted by SFAS No. 123, BankUnited continues to follow
the measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, " and, accordingly, does not
recognize compensation expense for its stock-based incentive plans. Had
compensation cost for BankUnited's stock based incentive
98
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(16) Stock Bonus Plan, Option Agreements and Other Benefit Plans - (Continued)
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the methodology prescribed by SFAS
No. 123, BankUnited's net income (loss) and earnings (loss) per share for fiscal
2000, 1999 and 1998 would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
(dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Net income (loss):
As Reported ...................................... $ 14,974 $ (4,367) $ 6,460
Pro Forma ........................................ $ 14,301 $ (5,935) $ 4,011
Basic earnings (loss) per share:
As Reported ...................................... $ 0.82 $ (0.24) $ 0.41
Pro Forma ........................................ $ 0.78 $ (0.32) $ 0.26
Diluted earnings (loss) per share:
As Reported ...................................... $ 0.81 $ (0.24) $ 0.39
Pro Forma ........................................ $ 0.77 $ (0.32) $ 0.26
</TABLE>
The pro forma results of operations reported above are not likely to be
representative of the effects on reported income of future years due to vesting
arrangements and additional option grants.
The fair value of each option has been estimated on the date of the grant
using the Black Scholes option pricing model, with the following historical
weighted average assumptions applied to grants in fiscal 2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
Dividend yields.......................... -- -- --
Expected volatility...................... 38% 40.00% 33.70%
Risk-free interest rates................. 6.21% 4.76% 5.55%
Expected life (in years)................. 7.00 6.96 7.00
Based upon the above assumptions, the weighted average fair value of
options granted during 2000, 1999 and 1998 was $2,917,000, $3,993,000 and
$5,565,000, respectively.
On September 7, 1999, the trustee of the 401(k) Plan and the trustees of
the Profit Sharing Plan approved a merger and transfer agreement between the
plans effective September 30, 1999. Under the terms of this agreement, the net
assets of the Profit Sharing Plan were transferred and assigned to the 401(k)
Plan as of September 30, 1999. The 401(k) Plan was then renamed the BankUnited
401(k) Profit Sharing Plan (the "Plan"). Under the terms of the combined plan,
eligible employees are permitted to contribute up to 15% of their annual salary
to the Plan. BankUnited currently intends to make quarterly matching
contributions at a rate of 75% of employee contributions, up to a maximum of 6%
of an employees' salary, in BankUnited's Class A Common stock. Employees are
eligible to participate in the plan after six months of service and begin
vesting in BankUnited's contribution after two years
99
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(16) Stock Bonus Plan, Option Agreements and Other Benefit Plans - (Continued)
of service at the rate of 25% per year up to 100%. For fiscal 2000, the Bank
made total matching contributions of approximately $438,000.
Prior to September 7, 1999, BankUnited had a 401(k) savings plan (the
"401(k) Plan") and a separate Profit Sharing Plan. For the years ended September
30, 1999 and 1998 BankUnited made total matching contributions of approximately
$159,500 and $71,900, respectively.
(17) Income Taxes
The components of the provision (benefit) for income taxes for the years
ended September 30, 2000, 1999 and 1998 are as follows:
For the Years Ended
September 30,
----------------------------------
2000 1999 1998
------- -------- -------
(dollars in thousands)
Current-federal ............. $ 8,538 $ 192 $ 3,874
Current-state ............... 842 7 663
Deferred-federal ............ 796 (1,941) 407
Deferred-state .............. 71 (161) 65
------- -------- -------
Total ..................... $10,247 $(1,903) $ 5,009
======= ======== =======
BankUnited's effective tax (benefit) rate differs from the statutory
federal income tax (benefit) rate as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------------------------------------
2000 1999 1998
-------------------- ---------------------- ----------------------
Amount % Amount % Amount %
------- ----- -------- ------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) at federal income
tax rate ............................. $ 8,776 35.0% $(1,868) (34.0)% $ 4,229 34.20%
Increase resulting from:
State tax .............................. 594 2.4% (192) (3.5) 480 3.9
Other, net ............................. 877 3.5% 157 2.9 300 2.4
------- ----- -------- ------- ------- ------
Total .............................. $10,247 40.9% $(1,903) (34.6)% $ 5,009 40.50%
------- ----- -------- ------- ------- ------
</TABLE>
100
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(17) Income Taxes (Continued)
The tax effects of significant temporary differences included in the deferred
tax asset as of September 30, 2000 and 1999 were:
<TABLE>
<CAPTION>
September 30,
------------------
2000 1999
------ ------
(dollars in thousands)
<S> <C> <C>
Deferred tax asset:
Non-accrual interest ................................. $ 650 $ 617
Loan loss and other reserves ......................... 5,041 4,755
Fixed assets ......................................... 14 --
Unrealized holding losses on securities
available for sale ................................. 2,624 1,398
Unrealized holding losses on securities
transferred to held to maturity .................... 856 924
Purchase accounting .................................. -- 1,154
Loan fees ............................................ 81 --
Other ................................................ 316 514
------ ------
Gross deferred tax asset ........................... 9,582 9,362
------ ------
Deferred tax liability:
FHLB stock dividends ................................. 31 34
Deferrals and amortizations .......................... 1,349 1,829
Fixed assets ......................................... -- 570
Other ................................................ 1,099 117
------ ------
Gross deferred tax liability ....................... 2,479 2,550
------ ------
Net deferred tax asset ........................... $7,103 $6,812
====== ======
</TABLE>
At September 30, 2000, BankUnited had $409,000 in tax bad debt reserves
originating before December 31, 1987 for which deferred taxes have not been
provided. The amount becomes taxable under the Internal Revenue Code upon the
occurrence of certain events, including certain non-dividend distributions.
BankUnited does not anticipate any actions that would ultimately result in the
recapture of this amount for income tax purposes.
101
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(17) Income Taxes - (Continued)
The components of deferred income tax (benefit) provision relates to the
following:
<TABLE>
<CAPTION>
Years Ended September 30,
-----------------------------------
2000 1999 1998
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Differences in book/tax depreciation ............. $ (584) $ 702 $ 15
Delinquent interest .............................. (33) (292) (71)
FHLB stock dividends ............................. (3) (72) (19)
Loan fees ........................................ (81) 0 0
Loan loss and other reserves ..................... (286) (3,044) (494)
Deferrals and amortization ....................... (480) 610 (76)
Purchase accounting and other .................... 2,334 (6) 1,117
------- ------- -------
Total deferred taxes ......................... $ 867 $(2,102) $ 472
======= ======= =======
</TABLE>
In connection with the acquisition of Suncoast, BankUnited recorded
deferred tax assets and liabilities for the differences between values assigned
in purchase accounting and the tax bases of acquired assets and liabilities.
Approximately $911,000, $911,000, and $540,000 for years ended September 30,
2000, 1999, and 1998, respectively, of this deferred tax asset was recognized as
deferred tax expense and $911,000 represented the tax effect at September 30,
1999 (none in 2000), of amounts deductible for tax purposes in future periods.
BankUnited also acquired net deferred tax assets of approximately
$1,140,000 in conjunction with its acquisition of Suncoast.
In connection with the acquisition of Consumers, BankUnited recorded
deferred tax assets and liabilities for the differences between values assigned
in purchase accounting and the tax bases of acquired assets and liabilities.
Approximately $294,000, $300,000 and $19,000 of net deferred tax assets have
been recognized as net deferred tax expense during the years ended September 30,
2000, 1999 and 1998, respectively, and $294,000 represented the tax effect at
September 30, 1999 (none in 2000), of amounts deductible for tax purposes in
future periods.
In connection with the acquisition of Central, BankUnited recorded deferred
tax assets and liabilities for the differences between values assigned in
purchase accounting and the tax bases of acquired assets and liabilities. With
respect to the Central acquisition, approximately $(51,000), $(2,800) and $7,000
of net deferred tax assets have been recognized as net deferred tax (benefit)
expense during the years ended September 30, 2000, 1999 and 1998, respectively,
and $51,000 represent the tax effect at September 30, 1999 (none in 2000) of
amounts taxable in future periods.
BankUnited also acquired net deferred tax liabilities of approximately
$189,000 in connection with its acquisition of Consumers and net deferred tax
assets of approximately $332,000 in connection with its acquisition of Central.
102
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(18) Commitments and Contingencies
In the normal course of business, BankUnited enters into instruments that
are not recorded in the consolidated financial statements, but are required to
meet the financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include commitments
to extend credit, purchase whole loans and securities, standby letters of credit
and derivative financial instruments. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial condition. The contract
or notional amounts of those instruments reflect the extent of involvement
BankUnited has in particular classes of financial instruments.
BankUnited's exposure to credit loss in the event of nonperformance by the
other party on the financial instrument is represented by the contractual amount
and collateral value, if any, of those instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Total commitments to extend credit at
September 30, 2000 were as follows:
<TABLE>
<CAPTION>
September 30, 2000
---------------------------------
Fixed Variable
Rate Rate Total
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Commitments to fund loans ...................... $ 3,931 $80,387 $84,318
Domestic letters of credit ..................... 12,889 -- 12,889
International letters of credit ................ 2,609 -- 2,609
------- ------- -------
Total .......................................... $19,429 $80,387 $99,816
======= ======= =======
</TABLE>
BankUnited evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by BankUnited,
upon extension of credit is based on management's credit evaluation of the
customer. Collateral varies but may include accounts receivable, property, plant
and equipment, residential real estate, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by BankUnited
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. BankUnited requires
collateral to support those commitments.
BankUnited currently holds five interest rate cap contracts with a major
Wall Street firm, having an aggregate notional amount of $800.0 million. Each
contract requires the counter-party to pay BankUnited quarterly interest
payments based on the notional amount and the difference between the index and
the cap rate, if and when the index exceeds the cap rate, in return for a
one-time payment by BankUnited. The indices used in these contracts are the
5-Year Treasury rate adjusted to a constant maturity (the "5-Year CMT rate"),
the 10-Year Treasury rate adjusted to a constant maturity (the "10-Year CMT
rate"), the 5-Year Constant Maturity Swap rate (the "5-Year CMS rate") and the
10-Year Constant Maturity Swap rate (the "10-Year CMS rate").
103
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(18) Commitments and Contingencies (Continued)
The following table sets forth information concerning the interest rate cap
contracts.
Notional Cap Termination
Amount Index Rate Date
---------------------- ------------- --------- ----------------
(dollars in thousands)
$100,000 5-Year CMT 7.50% March 23, 2002
100,000 10-Year CMT 7.25% March 23, 2002
100,000 5-Year CMS 8.85% March 23, 2003
400,000 10-Year CMS 9.35% March 23, 2003
100,000 10-Year CMS 8.85% March 23, 2003
-------------
$800,000
-------------
BankUnited entered into these contracts for the purpose of hedging a
portion of BankUnited's interest rate risk against rising interest rates on
certain borrowings from the Federal Home Loan Bank. As of September 30, 2000,
the 5-Year CMT rate was 5.82%, the 10-Year CMT rate was 5.77%, the 5-Year CMS
rate was 6.75% and the 10-Year CMS rate was 6.88%.
The following table provides additional information regarding the interest
rate caps:
As of September 30,
2000
----------------------
(dollars in thousands)
Aggregate notional amount .................. $ 800,000
Amortized costs ............................ $ 386
Aggregate market value ..................... $ 430
BankUnited and the Bank have employment agreements with certain members of
senior management. The employment agreements, which establish the duties and
compensation of the executives, have terms ranging from two and one-half years
to five years.
BankUnited is a party to certain claims and litigation arising in the
ordinary course of business. In the opinion of management, the resolution of
such claims and litigation will not materially affect BankUnited's consolidated
financial position or results of operations.
104
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(19) Related Party Transactions
BankUnited employs the services of a law firm, of which BankUnited's
Chairman of the Board and Chief Executive Office is senior managing director and
of which another director of BankUnited is managing director, and the services
of an insurance agency, of which a member of the Board of Directors is a vice
president. For the years ended September 30, 2000, 1999 and 1998, total fees, a
portion of which were capitalized, paid to this law firm totaled approximately
$2.5 million, $2.5 million and $2.2 million, respectively, and premiums paid to
this insurance agency totaled approximately $523,000, $428,000 and $445,000,
respectively. Commissions are less than 15% of the premiums paid.
In fiscal 1997, BankUnited leased property for a new branch, which is 25%
owned by BankUnited's Chairman of the Board. The lease is for a term of 3 years
with four, three year options to renew. The annual rent for the property is
approximately $121,000. Lease terms are comparable to those prevailing in the
area for similar transactions involving non-affiliated parties at the time that
the lease was signed.
105
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(20) BankUnited Financial Corporation
The following summarizes the major categories of BankUnited's (parent
company only) financial statements:
Condensed Statements of Financial Condition
-------------------------------------------
<TABLE>
<CAPTION>
As of September 30,
-------------------------
2000 1999
--------- ---------
(dollars in thousands)
<S> <C> <C>
Assets:
Cash ................................................................ $ 228 $ 1,698
FHLB overnight deposits ............................................. 7,579 2,831
Tax certificates .................................................... 632 545
Investments, net (market value of approximately $60 at
September 30, 2000 and 1999) ...................................... 60 60
Investments available for sale, at market ........................... 16,039 17,361
Mortgage-backed securities available for sale, at market ............ 11,261 22,908
Accrued interest receivable ......................................... 939 952
Investment in the Bank .............................................. 362,827 344,093
Investment in subsidiaries .......................................... 8,385 8,527
Other assets ........................................................ 20,381 20,718
--------- ---------
Total assets ...................................................... $ 428,331 $ 419,693
========= =========
Liabilities ............................................................. $ 4,611 $ 2,316
--------- ---------
Junior subordinated deferrable interest debentures ...................... 221,133 227,240
--------- ---------
Stockholders' equity:
Preferred stock ..................................................... 10 10
Common stock ........................................................ 185 185
Paid-in capital ..................................................... 181,692 181,335
Retained earnings ................................................... 29,055 14,081
Treasury stock ...................................................... (2,801) (1,684)
Accumulated other comprehensive loss, net of tax .................... (5,554) (3,790)
--------- ---------
Total stockholders' equity .............................................. 202,587 190,137
--------- ---------
Total liabilities and stockholders' equity .............................. $ 428,331 $ 419,693
========= =========
</TABLE>
106
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(20) BankUnited Financial Corporation (Continued)
Condensed Statements of Operations
----------------------------------
<TABLE>
<CAPTION>
For the Years Ended September 30,
--------------------------------------
2000 1999 1998
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Interest income ........................................................ $ 4,225 $ 4,563 $ 4,808
Interest expense ....................................................... 22,121 21,990 17,621
Equity income of the subsidiaries ...................................... 26,858 9,036 16,227
Operating expenses ..................................................... 1,665 2,943 1,495
-------- -------- --------
Income (loss) before income taxes, extraordinary item
and preferred stock dividends ........................................ 7,297 (11,334) 1,919
Income tax benefit ..................................................... (7,531) (7,740) (5,438)
-------- -------- --------
Net income (loss) before extraordinary item and
preferred stock dividends ............................................ 14,828 (3,594) 7,357
Extraordinary item (net of tax of $586) ................................ 936 -- --
-------- -------- --------
Net income (loss) before preferred stock dividends ..................... 15,764 (3,594) 7,357
Preferred stock dividends .............................................. 790 773 897
-------- -------- --------
Net income (loss) after preferred stock dividends ...................... $ 14,974 $ (4,367) $ 6,460
======== ======== ========
</TABLE>
Condensed Schedule of Other Comprehensive (Loss) Income
-------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended September 30,
-----------------------------------
2000 1999 1998
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Other comprehensive (loss) income, net of tax:
Unrealized holding (losses) gains arising
during the period .................................................... $(1,893) $(5,698) $ 1,278
Less reclassification adjustment for:
Amortization of unrealized losses on transferred
securities (net of tax) .............................................. 129 31 --
Realized gains on securities sold included in
net income ........................................................... -- -- (262)
------- ------- -------
Total other comprehensive (loss) income, net of tax .................... $(1,764) $(5,667) $ 1,016
======= ======= =======
</TABLE>
107
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(20) BankUnited Financial Corporation (Continued)
Condensed Statements of Cash Flows
----------------------------------
<TABLE>
<CAPTION>
-----------------------------------------
For the Years Ended September 30,
-----------------------------------------
2000 1999 1998
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................. $ 15,764 $ (3,594) $ 7,357
Less: Undistributed income of the subsidiaries .................... (26,857) (9,036) (16,227)
Extraordinary gain on repurchase
of trust preferred securities ................................... (1,522) -- --
Other ............................................................. 2,935 (10,229) (2,508)
--------- --------- ---------
Net cash used in operating activities ........................... (9,680) (22,859) (11,378)
--------- --------- ---------
Cash flows from investing activities:
Equity contributions to the Bank .................................. -- -- (110,000)
Equity contributions to subsidiaries .............................. -- -- (4,100)
Purchase of investment securities ................................. -- (3,915) (15,363)
Purchase of mortgage-backed securities ............................ -- -- (30,734)
Proceeds from repayments of mortgage-backed securities ............ 2,771 7,770 18,821
Proceeds from sales of mortgage-backed securities ................. 9,091 -- --
Net increase in tax certificates .................................. (87) (8) (1,654)
--------- --------- ---------
Net cash provided by (used in) investing activities ............. 11,775 3,847 (143,030)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of Junior subordinated
deferrable interest debentures .................................. -- -- 103,013
Repurchase of trust preferred securities .......................... (4,368) -- --
Dividend from Bank ................................................ 7,300 12,137 --
Net proceeds from issuance of common stock ........................ 125 2,010 60,502
Net proceeds from issuance of preferred stock ..................... -- -- 488
Purchase of treasury shares ....................................... (1,117) (1,684) --
Dividends paid on preferred stock ................................. (757) (658) (837)
Preferred Stock, Series 9% tender offer ........................... -- -- (43)
Preferred Stock redemption ........................................ -- -- (424)
--------- --------- ---------
Net cash provided by financing activities ....................... 1,183 11,805 162,699
--------- --------- ---------
Increase (decrease) in cash and cash equivalents .................... 3,278 (7,207) 8,291
Cash and cash equivalents at beginning of year ...................... 4,529 11,736 3,445
--------- --------- ---------
Cash and cash equivalents at end of year ............................ $ 7,807 $ 4,529 $ 11,736
--------- --------- ---------
</TABLE>
108
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(21) Estimated Fair Value of Financial Instruments
The information set forth below provides disclosure of the estimated fair
value of BankUnited's financial instruments. Management has made estimates of
fair value discount rates that it believes to be reasonable. However, because
there is no market for many of these financial instruments, management has no
basis to determine whether the fair value presented would be indicative of the
value negotiated in an actual sale. The fair value estimates do not consider the
tax effect that would be associated with the disposition of the assets or
liabilities at their fair value estimates.
Fair values are estimated for loan portfolios with similar financial
characteristics. Loans are segregated by category, such as commercial,
commercial real estate, residential mortgage, second mortgages, and other
installment. Each loan category is further segmented into fixed and adjustable
rate interest terms and by performing and non-performing status. The fair value
of loans, except residential mortgage loans, is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit risk inherent in the loan. The estimate
of average maturity is based on historical experience with prepayments for each
loan classification modified, as required, by an estimate of the effect of
current economic and lending conditions.
For residential mortgage loans, fair value is estimated by discounting
contractual cash flows adjusted for national historical prepayment estimates
using discount rates based on a compilation of secondary market sources
published by the OTS in their "Asset and Liability Price Tables" for September
30, 2000.
The fair value of the tax certificates is estimated at book value as these
investments historically have had relatively short lives and their yields
approximate market rates. The fair value of mortgage-backed securities and
investment securities is estimated based on bid prices available from securities
dealers.
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings and NOW accounts, and money market
accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows.
The fair value of the 10-1/4% Trust Preferred Securities is estimated at
book value as these securities are privately-placed and have no active market.
The fair value of the 9.60% and 9% Trust Preferred Securities is estimated based
on quoted market prices.
The fair value of borrowings, which include FHLB advances, securities sold
under agreements to repurchase and senior notes is determined by discounting the
scheduled cash flows through maturity using estimated market discount rates that
reflect the interest rate currently available in the market.
The fair value of servicing rights is received from a third party provider
which determines the valuation of the asset in the market.
109
<PAGE>
BankUnited Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
September 30, 2000
(21) Estimated Fair Value of Financial Instruments - (Continued)
The fair value of the off-balance sheet financial instruments is estimated
based on the OTS's valuation as contained in its September 30, 2000 "Interest
Rate Risk Exposure Report" prepared for the Bank by the OTS from information
provided by the Bank. The fair value of interest rate caps is determined through
a third party valuation analysis.
The following table presents information for BankUnited's financial instruments
at September 30, 2000 and 1999:
<TABLE>
<CAPTION>
As of September 30, 2000
-----------------------------
Carrying Value Fair Value
-------------- ----------
(dollars in thousands)
<S> <C> <C>
Financial assets:
Cash and cash equivalents ................................................. $ 339,321 $ 339,321
Tax certificates and other investments .................................... 28,164 28,087
Mortgage-backed securities ................................................ 342,355 340,247
Loans receivable .......................................................... 3,670,769 3,634,638
Mortgage servicing rights ................................................. 6,227 6,895
Other interest-earning assets ............................................. 62,676 62,676
Financial liabilities:
Deposits .................................................................. $2,609,538 $2,622,965
Borrowings ................................................................ 1,460,631 1,464,637
Trust Preferred Securities ................................................ 212,393 204,465
Off-balance sheet financial instruments ................................... - 636
<CAPTION>
As of September 30, 1999
-----------------------------
Carrying Value Fair Value
-------------- ----------
(dollars in thousands)
Financial assets:
Cash and cash equivalents ................................................. $ 226,535 $ 226,535
Tax certificates and other investments .................................... 39,874 39,800
Mortgage-backed securities ................................................ 347,224 343,170
Loans receivable .......................................................... 3,302,866 3,291,502
Mortgage servicing rights ................................................. 7,820 7,925
Other interest-earning assets ............................................. 54,927 54,927
Financial liabilities:
Deposits .................................................................. $2,279,798 $2,287,119
Borrowings ................................................................ 1,328,148 1,312,964
Trust Preferred Securities ................................................ 218,500 199,459
Off-balance sheet financial instruments ................................... - 1,227
</TABLE>
110
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of BankUnited.
The information contained under the caption "Election of Directors" to
appear in BankUnited's definitive proxy statement relating to BankUnited's 2001
Annual Meeting of Stockholders, which definitive proxy statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of BankUnited's fiscal year covered by this report on Form 10-K (hereinafter
referred to as the "Annual Meeting Proxy Statement"), is incorporated herein by
reference. Information concerning the executive officers of BankUnited is
included in Part I of this Report on Form 10-K.
Item 11. Executive Compensation.
The information contained under the caption "Executive Compensation" to
appear in the Annual Meeting Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" to appear in the Annual Meeting Proxy
Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information contained under the captions "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and Related
Transactions" to appear in the Annual Meeting Proxy Statement is incorporated
herein by reference.
111
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The Following Documents Are Filed as Part of this Report:
(1) Financial Statements.
The following consolidated financial statements of BankUnited and
the report of the independent certified public accountants
thereon filed with this report:
Report of Independent Certified Public Accountants
(PricewaterhouseCoopers LLP).
Consolidated Statements of Financial Condition as of September
30, 2000 and 1999.
Consolidated Statements of Operations for the years ended
September 30, 2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended
September 30, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules.
Schedules are omitted because the conditions requiring their
filing are not applicable or because the required information is
provided in the Consolidated Financial Statements, including the
Notes thereto.
(3) Exhibits.*
2.1 Agreement and Plan of Merger, dated July 15, 1996, between
BankUnited and Suncoast Savings and Loan Association, FSA.
(Exhibit 2.1 to BankUnited's Form S-4 Registration Statement,
File No. 333-13211, as filed with the Securities and Exchange
Commission on October 1, 1996).
2.2 Agreement and Plan of Merger between BankUnited and Consumers
Bancorp, Inc. dated September 19, 1997 (Exhibit 2.2 to
BankUnited's Form S-4 Registration Statement, File No.
333-39921, as filed with the Securities and Exchange
Commission on November 10, 1997).
2.3 Agreement and Plan of Merger between BankUnited and Central
Bank dated December 30, 1997 (Exhibit 20.1 to BankUnited's
Form 8-K dated December 30, 1997, as filed with the Securities
and Exchange Commission on January 2, 1998).
3.1 Articles of Incorporation of BankUnited (Exhibit 3.1 to
BankUnited's Form 10-Q Report for the quarter ended December
31, 1998, as filed with the Securities and Exchange Commission
on February 16, 1999).
3.2 Bylaws of BankUnited.
4.1 Statement of Designation of Series 1 Class A Common Stock and
Class B Common Stock of BankUnited (included as an appendix to
Exhibit 3.1).
112
<PAGE>
4.2 Statement of Designation of Noncumulative Convertible
Preferred Stock, Series A of BankUnited (included as appendix
to Exhibit 3.1).
4.3 Statement of Designation of Noncumulative Convertible
Preferred Stock, Series B of BankUnited (included as appendix
to Exhibit 3.1).
4.4 Statement of Designation of Noncumulative Convertible
Preferred Stock, Series C of BankUnited (included as appendix
to Exhibit 3.1).
4.5 Statement of Designation of Noncumulative Convertible
Preferred Stock, Series C-II of BankUnited (included as
appendix to Exhibit 3.1).
4.6 Statement of Designation of 8% Noncumulative Convertible
Preferred Stock, Series 1993 of BankUnited (included as
appendix to Exhibit 3.1).
4.7 Statement of Designation of 9% Noncumulative Perpetual
Preferred Stock of BankUnited (included as an appendix to
Exhibit 3.1).
4.8 Statement of Designation of 8% Noncumulative Convertible
Preferred Stock, Series 1996 of BankUnited (included as
appendix to Exhibit 3.1).
4.9 Form of Letter Agreement between BankUnited and the holders of
shares of BankUnited's Noncumulative Convertible Preferred
Stock, Series B (Exhibit 4.7 to BankUnited's Form 10-K Report
for the year ended September 30, 1998, as filed with the
Securities and Exchange Commission on December 29, 1998 [the
"1998 10-K"]).
4.10 Forms of Series 15A-F, Series 18E and Series 20A-F of
Subordinated Notes of the Bank (Exhibit 4.3 to BankUnited's
Form S-4 Registration Statement, File No. 33-55232, as filed
with the Securities and Exchange Commission on December 2,
1992).
4.11 The Advances, Specific Collateral Pledge and Security
Agreement dated March 30, 1998 between the Bank and the
Federal Home Loan Bank of Atlanta (Exhibit 4.9 to the 1998
10-K).
4.12 Indenture dated November 4, 1998 between the Bank and the Bank
of New York to which the Federal Home Loan Bank of Atlanta has
joined as a consenting party (the "Indenture") (Exhibit 4.91
to the 1998 10-K).
4.13 Form of the Bank's Senior Note (Fixed Rate) issuable pursuant
to the Indenture (Exhibit 4.92 to the 1998 10-K).
4.14 Form of the Bank's Senior Note (Floating Rate) issuable
pursuant to the Indenture (Exhibit 4.93 to the 1998 10-K).
4.15 The Letter of Credit Reimbursement Agreement dated November
14, 1998 between the Bank and the Federal Home Loan Bank of
Atlanta (Exhibit 4.94 to the 1998 10-K).
10.1 Non-Statutory Stock Option Plan, as amended, (Exhibit 4.9 to
BankUnited's Form S-8 Registration Statement, File No.
33-76882, as filed with the Securities and Exchange Commission
on March 24, 1994). **
10.2 1992 Stock Bonus Plan, as amended (Exhibit 10.2 to
BankUnited's Form 10-K Report for the year ended September 30,
1994 [the "1994 10-K"]).**
10.3 1994 Incentive Stock Option Plan. (Exhibit 10.3 to the 1994
10-K).**
113
<PAGE>
10.4 The Bank's Profit Sharing Plan. (Exhibit 10.4 to BankUnited's
Form S-2 Registration Statement, File No. 33-80791, as filed
with the Securities and Exchange Commission on December 22,
1995).**
10.5 1996 Incentive Compensation and Stock Award Plan, as amended
by approval of BankUnited's stockholders on January 26, 2000
(Exhibit 10.2 to BankUnited's Report on Form 10-Q for the
quarter ended December 31, 1999, as filed with the Securities
and Exchange Commission on February 14, 2000).**
10.6 Form of Employment Agreement between BankUnited and Alfred R.
Camner (Exhibit 10.6 to the 1998 10-K).***
10.7 Form of Employment Agreement between the Bank and Alfred R.
Camner (Exhibit 10.7 to the 1998 10-K).***
10.8 Form of Employment Agreement between the Bank and Mehdi
Ghomeshi (Exhibit 10.8 to the 1998 10-K).***
10.8.1 First Amendment to Employment Agreement between BankUnited,
the Bank and Mehdi Ghomeshi (Exhibit 10.1 to BankUnited's
Report on Form 10-Q for the quarter ended March 31, 1999, as
filed with the Securities and Exchange Commission on May 17,
1999).
10.9 Form of Change of Control Agreement between the Bank and
Earline G. Ford (Exhibit 10.11 to BankUnited's Form 10-K for
the year ended September 20, 1996, as filed with the
Securities and Exchange Commission on December 23, 1996).
10.10 Form of Change of Control Agreement between the Bank and
executive officers (Exhibit 10.10 to BankUnited's Report on
Form 10-K for the year ended September 30, 1999 [the "1999
10-K"])
10.11 Junior Subordinated Indenture with respect to BankUnited's 10
1/4% Junior Subordinated Debentures. (Exhibit 4.1A to
BankUnited's Registration Statement on Form S-4, File No.
333-24025, as filed with the Securities and Exchange
Commission on March 27, 1997).
10.12 Supplemental Indenture (Exhibit 4.1B to BankUnited's
Registration Statement on Form S-4, File No. 333-24025, as
filed with the Securities and Exchange Commission on March 27,
1997).
10.13 Form of Amended and Restated Trust Agreement of BankUnited
Capital. (Exhibit 4.3 to BankUnited's Registration Statement
on Form S-4, No. 333-24025, as filed with the Securities and
Exchange Commission on March 27, 1997).
10.14 Form of Amended and Restated Guarantee Agreement for
BankUnited Capital. (Exhibit 4.5 to BankUnited's Registration
Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.15 Form of Agreement as to Expenses and Liabilities (included as
an exhibit to Exhibit 99.6 to BankUnited's Registration
Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.16 Registration Rights Agreement (Exhibit 4.6 to BankUnited's
Registration Statement on Form S-4, No. 333-24025, as filed
with the Securities and Exchange Commission on March 27,
1997).
10.17 Registration Rights Agreement (Exhibit 4.7 to BankUnited's
Registration Statement on Form S-4, No. 333-24025, as filed
with the Securities and Exchange Commission on March 27,
1997).
114
<PAGE>
10.18 Purchase Agreement (Exhibit 99.4 to BankUnited's Registration
Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.19 Purchase Agreement (Exhibit 99.5 to BankUnited's Registration
Statement on Form S-4, No. 333-24025, as filed with the
Securities and Exchange Commission on March 27, 1997).
10.20 Underwriting Agreement dated June 1997 between BankUnited and
BankUnited Capital II and Raymond James and Associates, Inc.
and Ryan, Beck and Co. (Exhibit 1 to Amendment No. 1 to Form
S-2, No. 333-27397, as filed with the Securities and Exchange
Commission on May 30, 1997).
10.21 Form of Indenture with respect to BankUnited's 9.60% Junior
Subordinated Debentures. (Exhibit 4.3 to BankUnited's
Registration Statement on Form S-2, File No. 333-27597, as
filed with the Securities and Exchange Commission on May 22,
1997).
10.22 Trust Agreement of BankUnited Capital II. (Exhibit 4.6 to
BankUnited's Registration Statement on Form S-2, File No.
333-27597, as filed with the Securities and Exchange
Commission on May 22, 1997).
10.23 Form of Amended and Restated Trust Agreement of BankUnited
Capital II. (Exhibit 4.7 to BankUnited's Registration
Statement on Form S-2, No. 333-27597, as filed with the
Securities and Exchange Commission on May 22, 1997).
10.24 Form of Guarantee Agreement for BankUnited Capital II.
(Exhibit 4.9 to BankUnited's Registration Statement on Form
S-2, No. 333-27597, as filed with the Securities and Exchange
Commission on May 22, 1997).
10.25 Form of Agreement as to Expenses and Liabilities (included as
an exhibit to Exhibit 4.7) (Exhibit 4.10 to BankUnited's
Registration Statement on Form S-2, No. 333-27597, as filed
with the Securities and Exchange Commission on May 22, 1997).
10.26 Purchase Agreement between BankUnited and BankUnited Capital
III and PaineWebber Incorporated (Exhibit 1.1 to BankUnited's
Amendment No. 3 to Form S-3, No. 333-28677, as filed with the
Securities and Exchange Commission on March 6, 1998).
10.27 Form of Indenture with respect to BankUnited's 9% Junior
Subordinated Debentures (Exhibit 4.3 to Amendment No. 3 to
BankUnited's Registration Statement on Form S-3, No.
333-28677, as filed with the Securities and Exchange
Commission on March 6, 1998).
10.28 Trust Agreement of BankUnited Capital III. (Exhibit 4.6 to
BankUnited's Registration Statement on Form S-3, No.
333-28677, as filed with the Securities and Exchange
Commission on June 6, 1997).
10.29 Form of Amended and Restated Trust Agreement of BankUnited
Capital III. (Exhibit 4.3 to Amendment No. 3 to BankUnited's
Registration Statement on Form S-3, No. 333-28677, as filed
with the Securities and Exchange Commission on March 6, 1998).
10.30 Form of Guarantee Agreement for BankUnited Capital III.
(Exhibit 4.3 to Amendment No. 3 to BankUnited's Registration
Statement on Form S-3, No. 333-28677, as filed with the
Securities and Exchange Commission on March 6, 1998).
10.31 Form of Agreement as to Expenses and Liabilities (Exhibit 4.3
to Amendment No. 3 to BankUnited's Registration Statement on
Form S-3, No. 333-28677, as filed with the Securities and
Exchange Commission on March 6, 1998).
115
<PAGE>
10.32 Form of Underwriting Agreement dated April 2, 1998 between
BankUnited and Friedman, Billings, Ramsey & Co., Inc. and
PaineWebber Incorporated (Exhibit 1.1 to Amendment No. 1 to
Form S-3, No. 333-48249, as filed with the Securities and
Exchange Commission on April 2, 1998).
11.1 Statement regarding calculation of earnings per common share
(set forth in Footnote (2) to the Notes to Consolidated
Financial Statements contained in Part II, Item 8 of this
report on Form 10-K for the year ended September 30, 2000).
12.1 Statement regarding calculation of ratio of earnings to
combined fixed charges and preferred stock dividends.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of attorney (set forth on the signature page in Part
IV of this Report on Form 10-K for the year ended September
30, 2000).
27.1 Financial Data Schedule.
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the documents described therein.
** Exhibits 10.1--10.5 are compensatory plans or arrangements.
*** Contracts with Management.
(b) Reports on Form 8-K.
During the quarter ended September 30, 2000, no Current Reports on Form 8-K
were filed by BankUnited.
Supplemental Information
As of the date of filing of this report on Form 10-K no annual report or
proxy material has been sent to security holders. Such material will be
furnished to security holders and the Securities and Exchange Commission
subsequent to the filing of this report on Form 10-K.
116
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on
December 28, 2000.
BANKUNITED FINANCIAL CORPORATION
By: /s/ ALFRED R. CAMNER
------------------------------
Alfred R. Camner
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alfred R. Camner, Mehdi Ghomeshi and Marc Lipsitz
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this report
on Form 10-K and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on December 28, 2000 on behalf of the Registrant by the
following persons and in the capacities indicated.
/s/ ALFRED R. CAMNER Chairman of the Board, Chief Executive
------------------------------- Officer, and Director
ALFRED R. CAMNER (Principal Executive Officer)
/s/ MEHDI GHOMESHI President and Chief Operating Officer
------------------------------- and Director
MEHDI GHOMESHI
/s/ LAWRENCE H. BLUM Vice Chairman of the Board and Director
-------------------------------
LAWRENCE H. BLUM
/s/ MARC LIPSITZ Director and Corporate Secretary
-------------------------------
MARC LIPSITZ
117
<PAGE>
/s/ MARC D. JACOBSON Director
-------------------------------
MARC D. JACOBSON
/s/ ALLEN M. BERNKRANT Director
-------------------------------
ALLEN M. BERNKRANT
/s/ ANNE W. SOLLOWAY Director
-------------------------------
ANNE W. SOLLOWAY
/s/ NEIL MESSINGER Director
-------------------------------
NEIL MESSINGER
/s/ HUMBERTO LOPEZ Executive Vice President and
------------------------------- Chief Financial Officer
HUMBERTO LOPEZ
118
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
3.2 Bylaws of BankUnited
12.1 Statement regarding calculation of ratio of earnings to
Combined fixed charges and preferred stock dividends.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule
119
